My friends father died this year and he left him some 401k, and if he rolls it out, it is taxed 20% for federal taxes and then another 10% since he is not 59 1/2. Is it taxed once again on his taxes this year?
2006-11-21 03:42:01 · 5 answers · asked by Christie 2 in Business & Finance ➔ Taxes ➔ United States
The ? is for the child living on his tax return not the deceased. He already got paperwork telling him he is penalized another 10% due to age.
2006-11-21 04:04:28 · update #1
Unfortunately they rushed to distribute the 401K to your friend. They 20% for the federal tax is withholding required because the check was sent to your friend. You friend will have to report the full amount of the 401K on his 2006 tax return. the withholding will be shown on his return just like withholding from a salary.
Your friend will receive a 1099R in January reporting this distribution in his social security number.This form has a box labeled distribution code. The code should be the number 4 which is a distribution made because of death. This code keeps your Friend from having to pay the 10% early withdrawal penalty. If the code is wrong your friend will need to contact the company to have the code corrected.
2006-11-21 04:24:49 · answer #1 · answered by waggy_33 6 · 1⤊ 0⤋
The 20% is the amount of federal income tax that would be withheld from the distribution. If distributed, the gross amount is added to income and taxed at the individuals tax rate. Then in addition, the 10% penalty is added on. The 20% withholding is designed to cover the tax and penalty, whether or not it does, depends on the other income and the individuals's tax rate.
The other alternative would be to roll it over into his own IRA within 90 days and avoid current taxation all together.
2006-11-21 12:22:50 · answer #2 · answered by jkhickey 1 · 1⤊ 0⤋
The death of the owner of the 401K is an exception to the 10% penalty. The 20% withheld in tax will count towards your father's liability. If he owes more will depend on how much other income he has. He may owe states taxes depending on where he resides.
2006-11-21 11:50:42 · answer #3 · answered by daoco 4 · 1⤊ 0⤋
I think what needs to happen is that your friend needs to roll it over into his or her own IRA in order to avoid the tax and penalty.
I would advise speaking to a tax professional about this, however, because there may be other ways to avoid the tax and penalty.
2006-11-21 16:49:30 · answer #4 · answered by nova_queen_28 7 · 0⤊ 0⤋
My father passed away this year. I am handling his affairs. Will I have to file taxes for him for 2014 in 2015? He had a house that sold in 2014 and he had retirement and pension income.
2014-07-13 19:01:32 · answer #5 · answered by peters111 1 · 0⤊ 0⤋