You will need to file a tax return for each child to report the income as a beneficiary of the 401k. A Form 1099-R will be issued by the retirement fund administrator by the end of January or early February for the distribution. They will also have to report the Social Security benefits reported on a SSA-1099 on their tax returns. Assuming that you will be claiming them as your dependents, on their tax returns they would indicate that they can be claimed as a dependent on someone else's return.
Since you will be completing multiple tax returns, I would suggest you use one of the desktop CD/Download editions. You can complete as many tax returns as needed with the desktop editions without charge, whereas the online editions are only good for one tax return per account and user ID. Go to this TurboTax website for the desktop CD/Download editions - https://turbotax.intuit.com/personal-taxes/cd-download/
To enter a form 1099-R
- Click on Federal Taxes (Personal using Home and Business)
- Click on Wages and Income (Personal Income using Home and Business)
- Click on I'll choose what I work on (if shown)
- Scroll down to Retirement Plans and Social Security
- On IRA, 401(k), Pension Plan Withdrawals (1099-R), click the start or update button
To enter Social Security benefits reported on form SSA-1099
- Click on Federal Taxes (Personal using Home and Business)
- Click on Wages and Income (Personal Income using Home and Business)
- Click on I'll choose what I work on (if shown)
- Scroll down to Retirement Plans and Social Security
- On Social Security (SSA-1099, RRB-1099), click the start or update button
