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Lev, Tax Advisor
Category: Tax
Satisfied Customers: 29581
Experience:  Taxes, Immigration, Labor Relations
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Will I be tax if I cash out on my father's 401k, annuity,

Customer Question

Will I be doubled tax if I cash out on my father's 401k, annuity, and insurance policy (first up front and then for annual taxes)? He passed away and I am a beneficiary in CA. There was no trust, but I and my sisters were assigned as a beneficiaries to these accounts. His total assets were under $150K though so they don't have to go thru probate.
Submitted: 2 years ago.
Category: Tax
Expert:  Lev replied 2 years ago.
Hi and welcome to our site!
There is NO double taxation.
If distributed to the estate - that income will be reported for the estate - and will be passed to beneficiaries on K1 forms - so each beneficiary will include that income on his/her individual income tax return.
If distribution is reported directly to each beneficiary - no need to report that amount on the estate tax return.
Specifically we need to determine which income would be taxable.
Distribution form 401k will be treated as IRD - income in respect of the decedent - and will be reported as taxable on form 1099R.
Distribution from the annuity might be partly taxable - means - original after tax contributions are distributed tax free - and earnings will be taxable. Both total distribution and taxable part will be reported on form 1099R.
Life insurance proceed paid because of the death of the insured person - is not taxable income.
Regarding "up front" taxes - that is NOT actual tax liability - but withholding to cover possible tax liability.
The actual tax liability is calculated on the tax return -based on total income, filing status, deductions, etc.
Withholding made at the time of payment - will be also reported on form 1099R - and will be CREDITED toward the tax liability.
That is similar to withholding from wages.
So - no double taxation - and if withholding is more than your tax liability - you would be getting a refund.
Let me know if that answered your question.
Let me know if you need any help with reporting.