401k Lump Sum Death Distribution Without Beneficiary
As the estate administrator, I (the estate) received a lump sum distribution ($75k) for a deceased relative’s 401k. The 401k did not name a beneficiary, there is no will and the estate is still in probate. Is there a tax filing option for this distribution other than declaring the lump sum distibution as “other income” on Form 1041? The tax tables rates associated with Form 1041 are rather excessive!
Permalink Submitted by Alan - IRA critic on Wed, 2024-02-14 19:41
The estate gets a deduction for certain administrative expenses of the estate, and what’s left can be paid to the estate beneficiary under state intestate rules. The estate can deduct the amount paid to the beneficiary and the beneficiary then pays the tax on the amount received from the executor.
Permalink Submitted by Kevin Charette on Wed, 2024-02-14 20:40
My question is in regard to filing federal taxes for tax year 2023. The 401k distribuition took place in 2023. The estate has still not proceeded thru probate to the point I can payout the intestate beneficiary (creditors haved not been notified, etc.) . The estate (EIN) received a 2023 1099-R for the amount of the 401k distribution. Is reporting this as income on federal form 1041 my only option for paying 2023 federal taxes on this distribution.
Permalink Submitted by Alan - IRA critic on Wed, 2024-02-14 21:48
Am not confident about your 1041 options as estate income tax returns are outside the scope of this forum. But you might consider whether adopting a fiscal year for the estate will give you more time to distribute assets to the beneficiary. Another possibility is distributing a portion to the beneficiary that does not exceed the remaining estimated estate expense. The estate would get a deduction for that partial distribution and the beneficiary would owe tax at their lower rate.
Permalink Submitted by David Mertz on Wed, 2024-02-14 23:10
This income to the estate is required to be reported on Form 1041. Generally, the income that remains after applying some of it to estate expenses would be distributed to beneficiaries for taxation on the beneficiary’s tax return and the estate would take a deduction for Distributable Net Income, leaving the estate with no taxes owed. Distributed to the beneficiary, the income would be taxable on the beneficiary’s tax return for the year that includes the end date of the estate’s tax year that includes this income, so it would probably be good to consult with the beneficiary to determine whether it makes sense for the estate to use a calendar tax year or a fiscal tax year. Although the application for the EIN asks whether the estate will use a calendar tax year or a fiscal tax year, the tax year is not actually established until the first Form 1041 is filed.