Witholding on 401(k) paid to Estate as beneficiary
Decedent had a 401(k) plan account administered by Fidelity but did not have a beneficiary named. Decedent’s Estate is making a claim for a lump sum distribution. Fidelity is saying that a 20% withholding for federal income tax mandatory. Is this true?
Permalink Submitted by Alan - IRA critic on Thu, 2025-10-16 15:01
No. 20% WH is required only if the balance would have been eligible to be rolled over to an inherited IRA, but an estate beneficiary is not eligible for direct rollovers. This is stated in the final Secure Act Regs.
In this case, the default WH rate is 10%, however the WH Regs also allow an individual to decline withholding altogether. But it is not clear whether the plan will treat the executor as an individual who can decline withholding although it is worth a try.
It worse for a 401k participant not to name a beneficiary, because this will almost always result in a full taxable distribution with no stretch, even though the RMD Regs allow distributions to be spread out over the applicable distribution period for estates. Most plans will just issue a total distribution as soon as they receive the EIN for the estate.