Upon death, is a 401k lump-sum distribution to a trust beneficiary (for a qualified trust) subject to 20% mandatory withholding?

BW · ‎June 7, 2019

https://www.schwab.com/public/file/P-1625576/ page 17, "All trusts and estates | Take a lump-sum distribution." does not say "The distribution will be subject to a mandatory 20% withholding." like it does in other scenarios.

I am wondering it that is an omission, or if in fact a lump-sum distribution to a qualified trust is exempt from the 20% mandatory withholding penalty.

Critter · ‎June 7, 2019

No it is not subject to the withholding since the trust will pass thru the income to the beneficiaries and they will pay the required taxes.

View solution in original post

dmertz · ‎June 7, 2019

A distribution paid to an estate or trust (or to a non-spouse beneficiary for that matter) is not eligible for rollover to another qualified retirement account, so the 20% mandatory tax withholding (not penalty) on distributions eligible for rollover does not apply.

Upon death, is a 401k lump-sum distribution to a trust beneficiary (for a qualified trust) subject to 20% mandatory withholding?

Retirement tax questions

Retirement tax questions