401k withdrawal as beneficiary

[Nola5]

My family member was the beneficiary of a 401k was worth about $200,000. In 2023, they chose to withdraw the full amount and pay all taxes and fees upon withdrawal. The beneficiary has been disabled for 30+ years and has never filed their taxes due to being on disability with no income from working. They recently received a letter in the mail stating something along the lines of filing taxes related to the 401k withdrawal. I am trying to help them with this because they have not done their taxes before and are not very tech savvy. Is it possible that they would have to pay additional fees for the past withdrawal? 

[dmertz]

"pay all taxes and fees upon withdrawal."

Tax withholding is simply a down payment toward the tax liability determined on the family member's individual tax return.  It is not paying all taxes and fees upon withdrawal.  The Form 1099-R that reports this distribution was required to be included on the tax return (Form 1040) for the year in which the distribution occurred and the tax withholding will be credited against the resulting tax liability.  The result could be a refund or a balance due.

In this case it would be likely that there would be a balance due since the default federal tax withholding on a distribution that is ineligible for rollover would normally be 10% and 10% would be insufficient to cover the tax liability resulting from $200,000 of taxable income.