I inherited my mom's 401k when she passed. Is that money taxable by federal and state government? I live in the state of Iowa.
State/Country relating to question: Iowa
Tried to find answer on IRS website with no luck.
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If you take the money out of the 401k and do not roll it into an inherited IRA fund, the 401k will be taxable income to you on your federal and state income tax returns. However, there will not be a penalty as this is an inherited 401k and will have a code of 4 on the 1099-R. Here is a link to some information on inherited 401ks when you are not the spouse. http://www.themoneyalert.com/InheritingA401k.html
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I inherited the account as the executor and split it with my siblings thinking it was an inheritance and not taxable. I take it this means I will have to foot the bill on my taxes.
I also had to use some of it to pay her final expenses. Is there a way to reduce my tax liability based on that?
Whomever the beneficiary was will get the 1099-R and will have to report the income. You could always ask the siblings to reimburse you for the taxes if they will do that.
If your mom had an estate, some of her final expenses may be deductible on her estate tax return, depending upon what they are. If there were medical expenses and she was your dependent, you could claim those medical expenses on your tax return.
MTax, EA, QuickBooks Proadvisor. Over 10 years accounting and tax experience specializing in individual and small business.