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

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

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. 

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2 Replies

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

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. 

dmertz
Level 15

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

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.
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