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Megan C
Megan C, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 16547
Experience:  Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
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I have questions on 401k. I am the designated beneficiary.

Customer Question

I have questions on 401k. I am the designated beneficiary. Do I have to withdraw it within five years? What is the tax rate ? What if I do not want to withdraw?
Submitted: 11 months ago.
Category: Finance
Expert:  Megan C replied 11 months ago.

Thanks for your question. You have a couple of options. You can draw the entire balance out in 5 years -- over the 5 year (you don't have to take one lump sum) or you can elect to take withdrawals through your lifetime. The election needs to be made within that first 5 years.

The tax rate is based on your personal income -- you are paying ordinary taxes on it.

Under the life expectancy method:

  • Your annual distributions are spread over the beneficiary's single life expectancy determined by your age in the calendar year following the year of death and reevaluated each year.
  • If multiple beneficiaries, separate accounts must be established by 12/31 of the year following the year of death; otherwise, distributions will be based on the oldest beneficiary.
  • Required Minimum Distributions (RMDs) are mandatory and you are taxed on each distribution.
  • You will not incur the 10% early withdrawal penalty.
  • Undistributed assets can continue growing tax-deferred.
  • You may designate your own IRA beneficiary.

Please let me know if you need anything additional. If not, please rate positive.

Customer: replied 11 months ago.
if I want to draw it within 5 years, I have to take one lump sum, if over 5 years, I can withdraw any amount at any time, but if I wish to take withdraws through my lifetime, I have to make that election within the first 5 years. Did I understand correct?
Customer: replied 11 months ago.
What is IRA account?
Expert:  Megan C replied 11 months ago.

IRA/401(k) -- same inherited rules. Sorry for the confusion. And yes, you are understanding correctly. And, you can take the entire amount spread over 5 years, but not all in the same year. It's up to you but you have to make the election by the end of the 5th year.

Thanks, ***** ***** rate so that I may receive credit for assisting you today.

Customer: replied 11 months ago.
I am not a US citizen, can I set up my 401k account in US?
Customer: replied 11 months ago.
Right now I just inherited my husband's account.
Customer: replied 11 months ago.
I am now still working, but will get retired in 5 years, by then my income will only be my pension. I will rely on this 401k. Can you briefly let me know the tax rate?
Customer: replied 11 months ago.
Can I continue invest into this account till I get retired? If yes, how can I put my money into this account? I am not working in US, it is impossible to make direct deposit.
Expert:  Megan C replied 11 months ago.

Thanks for your follow up, and for giving me information that should have been in your original request.

You cannot open a 401(k) account for yourself, because by their very nature they are set up for an employing organization.

If you are a US Resident, then you will just pay income tax on it -- but as a spouse you can hold on to that account and roll it over-- only spouses can do this.

If you are not a resident, and not a citizen -- you will also have estate tax considerations. You will definitely need the assistance of a live in-person tax professional as the estate tax considerations for non-citizens are very considerable.

Thanks

Please rate so that I may receive credit for assisting.

Customer: replied 11 months ago.
Thanks for your info. May I know how I can get the assistance of a live-in tax professional?
Customer: replied 11 months ago.
I am not a citizen, not a resident now. Does it mean I can not keep on putting money into tHis account?
Expert:  Megan C replied 11 months ago.

That is exactly what it means, and you will need to liquidate the account and you will owe taxes and estate taxes. I'm so sorry.

You can find tax offices online who cater to expats and nonresidents. You will leave to call them, as we do not provide return prep services at this time.

Please let me know if you need anything additional. If not, please rate positive

Customer: replied 11 months ago.
Dear Megan, sorry to know that but thank you for your information. Would it be possible that you can provide me some websites where I can find tax offices catering to non residents.

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