@artjcatl wrote:
@Opus 17 , @DoninGA , @Bsch4477
I found out that I'll actually be inheriting 2 separate 401K plans as the beneficiary. I'm a non-spousal beneficiary.
The 1st 401K plan is a traditional pretax 401K with about $30K.
The 2nd plan contains both pretax 401K & Roth 401K funds. The pretax funds are $5K and about $100K in Roth 401K funds.
What would the taxes due be for federal and state (GA) for cashing out these two 401K plans?
I believe there is no 10% penalty for both 401K plans because I'm inheriting the funds due to original owner dying correct?
Will the Roth 401K portion of the funds be taxed and counted as income or this only applies to the pretax portion of the 401K funds?
Thanks
You can't keep the 401(k) as a 401(k), you must either cash it out or roll it over to an inherited IRA.
If you cash out completely, you will pay regular income tax on the pre-tax portion. The designated Roth portion is not taxable. You don't pay the 10% penalty even though you are under age 59-1/2.
If you rollover the money to an IRA, the pre-tax portion will go into a traditional IRA and the designated Roth portion must go into a separate Roth IRA (they can be with the same bank, of course). Then you have 10 years to withdraw the money. Spreading the money out may reduce the tax you eventually pay, depending on your other income.
To estimate your federal income tax, you need to know about other income, dependents, and credits. You can try the Turbotax TaxCaster.
TaxCaster tax calculator
Georgia's tax rate is 5.75%.
If you have a large lump sum of income, you are supposed to make estimated tax payments. If you don't, you could owe an under-payment penalty even if you pay in full when you file your return. You should make estimated tax payments to the IRS and Georgia by January 15, for a lump sum income received between September and December. If you pay too much in your estimate, it will come back to you in your tax refund when you file your tax return. Since you only have $35K of taxable income, a 15% payment to the IRS and a 5.75% payment to Georgia will probably work. Or you can ask the 401k trustee to withhold the taxes for you.
Remember that any taxes withheld are only an estimate. You report the distributions on your income tax return where the actual tax due is calculated based on all your income, deductions and credits for the year.
