Beneficiary of 401k who has deceased
Single mother (divorced), age 56 dies. Only child, age 33 is beneficiary. Employer (a bank) of deceased claims that because the beneficiary is not a surviving spouse, the child beneficiary must take 401k proceeds in lump sum. It cannot be rolled over to an IRA account. Is this true? IRS rule or bank plan administrator rule?
If true, is there any special tax treatment, or does it get fully taxed as ordinary income?
1 Answer from Attorneys
Re: Beneficiary of 401k who has deceased
The Internal Revenue Code and the 401(k) plan document govern the rules of the distributions. 401(k) plans have different rules than IRAs, so it may be true that you don't have the ability to roll it over to an IRA in your name. Ask for a copy of the bank's "plan document." If you are the beneficiary, they have to supply you with one upon request.
Distributions from a 401(k) would be treated as ordinary income.
If the money is being distributed in 2005, you will receive a 1099-R next January which will show you the taxable amount. You could also request that tax be withheld from the total amount so you don't have to worry about paying estimated income taxes during the year. (The bank may do this automatically.)
Consult a tax advisor who can be presented with ALL of the details about this situation. He/she will then be able to give you a more accurate answer based on all of the facts.
Good luck to you.
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