Your sister could have a million dollars in her 401k but if she did not work, you supported her so she is your dependent. If she takes money out of the 401k, then it is income. She should not take more than $4,049 or you will not be able claim her on your tax return.
There are other rules that must be met to file HOH . See Table 4 Pub 501 available at <a rel="nofollow" target="_blank" href="
http://www.irs.gov">www.irs.gov</a>
