Can I be charged for withdrawing funds from a 401k? 7 Answers as of July 04, 2013

If my sister is deceased and leaves 401k plan in name of my son, can the company charge me a penalty fee for withdrawing the money? It wouldn’t be considered taking early because she is deceased. I am in this situation currently.

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Majors Law Firm, P.C.
Majors Law Firm, P.C. | M. Jason Majors
Your son would likely not be charged an early withdrawal penalty, but the withdrawals would probably be subject to income taxes. The administrator for the 401(k) should be able to quickly confirm the answer to this question for you. Keep in mind that if the 401(k) is for the benefit of your son, the funds will need to be held/used for his benefit.
Answer Applies to: Wyoming
Replied: 7/13/2011
The Schreiber Law Firm
The Schreiber Law Firm | Jeffrey D. Schreiber
Your assumption that person used currently for determining withdrawal is the sister. It is not. It is the current beneficiary. If he does not qualify, the bank can withhold as he would be subject to withholding for taking a withdrawal now.
Answer Applies to: California
Replied: 7/8/2011
Phinney Estate Law
Phinney Estate Law | Jamie Clausen
Beneficiaries of 401K plans have two choices. If your son has not already elected to roll the money over into an inherited IRA, he should be able to take the money out of the plan in the first 5 years following your sister's death and pay not early withdrawal penalty. He will, however, then be required to take out all fund and pay all differed income taxes. If you son is still a minor and was named directly as a beneficiary (as opposed to the beneficiary being a custodial account or trust of which he is the beneficiary) there may be a problem with his receiving the money without a court ordered guardianship, court created trust, or blocked account. You should check with the company about what they will require and work with an attorney to have that set up so that it can receive the funds.
Answer Applies to: Washington
Replied: 7/7/2011
Ashman Law Office
Ashman Law Office | Glen Edward Ashman
First of all, do NOT request the funds until you meet with a Certified Public Accountant or tax attorney. An improper request could cost you dearly. There are ways to access the funds. Apart from rollovers to an IRA, all money distributed from a 401k is taxable except amounts that represent the return of nondeductible contributions, determined under IRS rules. If you don't need the money right away, it may possibly make sense to keep the account open as long as possible. As long as the money stays invested in the 401k, your funds can continue to grow tax-deferred. Further, you may have the option of actively investing the account. If you trade within the 401k, there is generally no income tax liability on appreciated securities that you sell and no tax reporting that you need to worry about. However, the tax rules make it unwise for you to simply ignore your account until you really need the money. If you delay taking distributions from your account beyond certain deadlines, you face substantial tax penalties. So you have to know when to withdraw money. These rules could cost you enormous amounts when you guess wrong. So see your CPA or your tax lawyer and do not request any money until you do.
Answer Applies to: Georgia
Replied: 7/7/2011
The Coyle Law Office
The Coyle Law Office | T. Andrew Coyle
A lot is dependent on the specific facts, but the funds distribution is taxable and the fund company will withhold the estimated tax. You should have this reviewed by an attorney or CPA who can look at all of your specifics.
Answer Applies to: Illinois
Replied: 7/7/2011
    Apple Law Firm PLLC
    Apple Law Firm PLLC | David Goldman
    You need to review the terms of the agreement, it may be considered a early withdrawal.
    Answer Applies to: Florida
    Replied: 7/4/2013
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