401k on death

Forum|Forum|3 years ago
March 30, 2023
1 reply
2 views

Here is my tax question:

Background – Male 64, retired.

Wife 72, retired.

Living in MD jointly filing taxes.

401k about $900,000

If I (the husband) die, I want to distribute the entire balance of the 401k and benefit my wife.

She will leave the country and our lawyer (Power of Attorney) will take care of the T. Rowe administrative conditions.

How do we prevent T. Rowe from withholding the mandatory 20% taxes from the 401k?

dmertz

Level 15

The only way to avoid the otherwise mandatory 20% tax withholding is to request a direct rollover to a traditional IRA and then take a distribution from the traditional IRA. There is no mandatory withholding on a direct rollover and tax withholding on a traditional IRA distribution can normally be declined. However, if she is a foreign person at the time of the distribution from the traditional IRA, there might be 30% mandatory tax withholding: https://www.irs.gov/retirement-plans/plan-distributions-to-foreign-persons-require-withholding

JaruwanAuthor

Level 2

Thank you. I want to make clear, we understand taxes will be due on the 401k distribution, but we are trying to avoid TRowe deducting the tax pre-emptively. She will file taxes at the end of the year, like normal. Is it possible to make an adjustment on Form W4-P?

dmertz

Level 15

With regard to a distribution paid to your wife from the 401(k), Form W-4P can be used to increase the tax withholding beyond the mandatory 20%, not reduce it below the mandatory amount. Mandatory means mandatory.