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USTaxAdvising
USTaxAdvising , Accountant
Category: Finance
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Experience:  Professional with finance related questions.
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Hello, My husband has passed away and left me as a beneficiary

Resolved Question:

Hello,
My husband has passed away and left me as a beneficiary on his 401 K.
I want for the Retirement Fund to send me a check of the full amount.
I will the reinvest the entire amount into my own , already established, Retirement Account.
I then need to move the money out of my retirement account, in increments as needed , to pay for college expenses for my kids who are still in college.
Will I be taxed on funds only used for college??
Thank you
Submitted: 3 years ago.
Category: Finance
Expert:  USTaxAdvising replied 3 years ago.

USTaxAdvising :

Hello,

USTaxAdvising :

No you should not be taxed on the funds used for college.

USTaxAdvising :

These would be gifts to your children and normally gifts in excess of $13K would be subject to gift taxes but there is an exception when gifting funds directly to an educational institution for the recipients education. Basically gifts for education is free from gift tax.

USTaxAdvising :

The funds withdrawn from the 401K will be subject to ordinary tax rates though. Just like a regular withdrawal.

USTaxAdvising :

Although, withdrawals made for education are not subject to the early withdrawal penalty of 10% (in the event you would be subject to the early withdrawal penalty)

USTaxAdvising :

So to answer your question more explicitly, yes you will have to pay tax on the distribtions used for your children's education. Although you will not be subject to gift tax on the gifts made to your children for their higher education.

USTaxAdvising :

I trust this provides the answers you were looking for, albiet it may not be the answer you wanted. Please let me know if you have any further questions.

USTaxAdvising :

best regards,

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