Foreign Beneficiary on a US 401(k) Plan

[Guest LStein]

Can a participant in a US company designate a foreign beneficiary on their 401(k) account? the foreign beneficiary is a relative, the participant has no relatives in the US.

[John Feldt ERPA CPC QPA]

Yes they can. If the participant dies and the death benefit is to be paid to this foreign individual, I think the beneficiary will need to obtain a taxpayer ID (if they don't already have one).

[mbozek]

Yes they can. If the participant dies and the death benefit is to be paid to this foreign individual, I think the beneficiary will need to obtain a taxpayer ID (if they don't already have one).

Foreign beneficiary will be subject to 30% withholding on distributions unless beneficary's country has a tax treaty with US..

[Belgarath]

I've often wondered - in this situation, say the tax treaty was misunderstood, or the Plan Administrator didn't understand that tax treaties might be involved, or just intentionally ignored it - and the 30% is withheld anyway. Is there a "penalty" to the payor for doing this?

[mbozek]

I've often wondered - in this situation, say the tax treaty was misunderstood, or the Plan Administrator didn't understand that tax treaties might be involved, or just intentionally ignored it - and the 30% is withheld anyway. Is there a "penalty" to the payor for doing this?

I dont know of any penalty for overpayment of taxes. Taxpayer can file return to receive refund.