401K tax to spouse

[Ceil05]

What is the name of your state? Connecticut

I am beneficiary on my husband's 401K. If he dies first, will I need to pay death taxes on the money? Or will it pass to me without taxes. I realize my beneficiary would have to pay death taxes.

 

[efflandt]

I could not find this specifically for 401k, but since a 401k can be rolled over into an IRA, it may be the same rules. See http://www.irs.gov/publications/p590/ch01.html#d0e2986

If you are a spouse, you can either leave it as it is, with you as beneficiary, or roll it over into your own IRA or other retirement plan. A direct trustee to trustee transfer would avoid any withholding.

A beneficiary who is NOT a spouse has to leave it in the name of a trustee FBO the deceased, if they want to maintain its tax deferred status.

In either case, the money has never been taxed, so normal income tax is due as money is distributed from the account.

Also see http://www.irs.gov/publications/p590/ch01.html#d0e5343 and read down including "IRA Beneficiaries"

 

[abezon]

The value of the 401k is included in the deceased's gross estate for estate (death) tax purposes ($1.5M tax free). The money is taxed as it is withdrawn from the account as ordinary income on your personal income tax return, no penalty.