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Lev
Lev, Tax Advisor
Category: Tax
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Experience:  Taxes, Immigration, Labor Relations
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My father recently passed away and left my brother and i a

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My father recently passed away and left my brother and i a small 401k of about $9000 which will be divided between us evenly. I currently live and work in Germany. I earn Euro and not dollar, so my taxable income every year is 0. My Question is what options or rather what would be my best option to do with this money. I was considering a payout.


How much tax would i pay on this amount ($4500.00)

Submitted: 1 year ago.
Category: Tax
Expert:  Anne replied 1 year ago.

Anne :

Hi

Anne :

Thank you for using justanswer

Anne :

I am truly sorry for your loss

Anne :

I'm reading something for you.........please give me a minute

Anne :

You have a couple of choices on how to handle the portion of the 401K

Anne :

First you can take the lump sum and pay taxes on it (even if you are working overseas, this distribution is US sourced, so you would have to fie a 1040.

Anne :

You also may "roll " this 401K into an IRA, but there are specific rules for this

Anne :

1-If you choose to roll this over , it must be performed from institution to institution.........you may not touch the money......

Anne :

The IRA must be titled in the name of the deceased, with the non spouse (you) listed as the beneficiary




Anne :

When you reach age 70 1/2, you must start taking the required minimum amount, just as you would with any other IRA

Anne :

I need to leave the forum in a few minutes.....although I was hoping to be able to answer any questions you had before I had to leave

Anne :

I will be back later today, so if you have questions, please post them here

Customer:

How much would i be taxed on $4500?

Customer:

And do i have to wait until im 701/2 to withdraw the money?

Expert:  Lev replied 1 year ago.
Hi and welcome to Just Answer!
Different expert here - please allow me to assist.

Your original question was - How much tax would i pay on this amount ($4500.00)
Because you are living and working in a foreign country - you are likely eligible for a foreign earned income exclusion - and pay no US income taxes.
However - distribution from the 401k is not earned income for that purposes and may not be excluded. It will be taxable at your marginal tax rate - which is determined without considering a foreign earned income exclusion.
For instance - if your total income - before the foreign earned income exclusion - is $70,000 (converted into US currency) - and you are likely in 25% federal tax bracket - the distribution from the 401k will be taxed at 25% tax rate.
Please take a look at tax rate schedule on the last page in this publication - www.irs.gov/pub/irs-pdf/i1040tt.pdf‎

Your second question - And do i have to wait until I'm 70 1/2 to withdraw the money?
No need to wait.
There is no penalty for distribution from the inherited 401k - and you may take the full distribution immediately. That is one option.
Inherited 401k account may not be treated as your own and may not be rolled into your own IRA - but may be rolled over to specially titled "inherited IRA" - that would be another option if you want to delay or spread distributions over several years.
If your father was above 70 1/2 and already started required minimum distribution (RMD) - you must continue such distributions.

Let me know if you need any help.
Customer: replied 1 year ago.

Hi LEV,


 


Thanks for the answer, The link you provided did not work, so i googled it. If i understand what you saig correctly, I would need to convert my foriegn incom to dollars to determine my Tax Bracket (http://individual.troweprice.com/public/Retail/Planning-&-Research/Tax-Planning/Prepare-Your-Taxes/Tax-Rate-Schedules). Once this is determined, i know how much i would be taxed?!


 


Is this correct?

Expert:  Lev replied 1 year ago.
You need to copy the following line and paste it into your address - I just verified - and it works - please try again.

http://www.irs.gov/pub/irs-pdf/i1040tt.pdf

But you may use the tax rate schedule from the site you referenced - there is no difference.

Yes - you are correct - assuming - you are US citizen - you are required to report all your worldwide income on your US tax return.
If you receive some of your income in foreign currencies - that income must be converted into USD based on the conversion rate which was in effect when income was received.

You may estimate your possible tax liability based on your marginal income tax rate.
However - if you want to know your exact tax liability - the tax return must be prepared.
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22749
Experience: Taxes, Immigration, Labor Relations
Lev and 3 other Tax Specialists are ready to help you

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