Death Distribution to non-spousal beneficiaries

[Vlad401k]

Is a 20% mandatory tax withholding required for a non-spousal death distribution? What about state taxes (if applicable for that state)?

[QDROphile]

The 20% withholding applies only eligible rollover distributions, not to distributions to nonspouse beneficiaries. If state tax law says withholding is required, then withholding is required. Most states have rules parallel to federal rules.

[Belgarath]

Sorry, I don't agree. Under IRC 402©(11) as amended by ?WRERA?? - it is an eligible rollover distribution, (if paid in a form otherwise eligible for rollover) and thus subject to 20% withholding if not rolled over. I believe this didn't apply until 2010.

[QDROphile]

Thank you for the correction.

[khr]

I processed a death benefit recently as a lump sum distribution to the beneficiary (son of participant) and the brokerage house did not withhold the 20% tax. The field stated that federal tax was not mandatory to be withheld. Is there a place I can find the rules specific to non-spouse beneficiaries?

[GMK]

these may be helpful:

http://www.advisorsquare.com/new/coughlanfinancial/content.asp?contentid=2017793647

http://www.obliviousinvestor.com/inherited-ira-rules/

http://www.irs.gov/pub/irs-tege/epchd603.pdf

[QDROphile]

IRC section 3405© plus 402(c )(11) via 402(f)(2). You have to connect the dots.

http://www.irs.gov/Individuals/International-Taxpayers/Pensions-and-Annuity-Withholding