How are 401k Company Stock Cash Dividends Taxed?

Submitted by Joseph Schwarz on Thu, 2024-04-04 21:27

When a client elects company stock dividends within a 401k plan to be paid in cash, how are those taxed?

Taxed at dividend rate, likely not.

Taxed as a withdrawal from the 401k, likley.

Does the 10% penalty apply?

Thanks

Permalink Submitted by Alan - IRA critic on Fri, 2024-04-05 02:43

They are taxed at the full ordinary income rate and subject to the early distribution penalty unless reported on Form 1099DIV.

However, Sec. 404k dividends paid from an ESOP are not subject to the penalty.

Permalink Submitted by Joseph Schwarz on Fri, 2024-04-05 12:13

Thanks!