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  1. #1
    Join Date
    Oct 2006
    Posts
    7

    Default 401k Beneficiary

    Will a Special Needs Trust for a disabled person receive the same tax advantages as an individual if specified as the beneficiary of a 401K - ie. the trust receives an annual payout paying taxes on the amount received from the 401K each year from the trust account?

    Disabled individual is the beneficiary for both parents and unmarried, childless sibling. Does the relationship affect the planning process? Can everything be handled in a single trust?

    Assume the SNT is the beneficiary even if there is no tax advantage. Is the distribution on the death of the owner considered a single event or can it be taken out over a time period specifed by the financial institution? Can the tax paid from the cash in the 401K or must it be paid from other assets? There is only income tax to consider - no estate tax will likely be due.

    Thanks.

  2. #2
    Join Date
    Oct 2006
    Posts
    16,474

    Default Re: 401k Beneficiary

    Quote Quoting candg918
    View Post
    Will a Special Needs Trust for a disabled person receive the same tax advantages as an individual if specified as the beneficiary of a 401K - ie. the trust receives an annual payout paying taxes on the amount received from the 401K each year from the trust account?

    Disabled individual is the beneficiary for both parents and unmarried, childless sibling. Does the relationship affect the planning process? Can everything be handled in a single trust?

    Assume the SNT is the beneficiary even if there is no tax advantage. Is the distribution on the death of the owner considered a single event or can it be taken out over a time period specifed by the financial institution? Can the tax paid from the cash in the 401K or must it be paid from other assets? There is only income tax to consider - no estate tax will likely be due.

    Thanks.
    The rules regarding the inheritance of a 401k have recently changed. It is now possible to roll an inherited 401k into a retirement account for the beneficiary...which would allow it to be taken out over the life of the disabled beneficiary.

    I would strongly recommend that all parties consult a local tax professional as well as someone with expertise in estate planning. While taxes are a significant issue, its also critical that the funds be protected for the sake of the beneficiary.

  3. #3
    Join Date
    Oct 2006
    Posts
    7

    Default Re: 401k Beneficiary

    I know that dealing with issues involving the disabled is not a typical area of practice for financial planners. Is there some professional organization or certification that deals specifically with these types of problems or could any CPA assist me in this planning?

    Thanks.

  4. #4
    Join Date
    Oct 2006
    Posts
    16,474

    Default Re: 401k Beneficiary

    Quote Quoting candg918
    View Post
    I know that dealing with issues involving the disabled is not a typical area of practice for financial planners. Is there some professional organization or certification that deals specifically with these types of problems or could any CPA assist me in this planning?

    Thanks.
    Any professional involved in ESTATE planning, not necessarily financial planning, should be able to assist you.

  5. #5
    Join Date
    Jul 2007
    Location
    Florida
    Posts
    2,344

    Default Re: 401k Beneficiary

    An Enrolled Agent would be the most qualified individual to advise you on the tax portion of your issue, not necessarily a CPA. An estate planning attorney or tax attorney would also be well qualified to help you.

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