Minor 401k beneficiary in California

Technical topics regarding tax preparation.
#1
zeavran  
Posts:
23
Joined:
3-Mar-2018 1:20pm
Location:
SF Bay Area
Hello all.

This is a first one for me.

I have a client who's 12 year old son inherited his uncle's 401k. No trust involved as Uncle just named his nephew the 100% beneficiary. I know that the first step would be to go over the plan document to make sure it's not too restrictive. But assuming it allows "basic" inheritance options, my concern is how state law (CA) governs 401k inheritances for minors.

My initial assumption is that the parent can establish an UTMA for the minor and have the RMDs (or entire amount?) deposited into it. Or (if the plan allows) should the money be rolled into an Inherited IRA? Either way, will the minor's income be subject to Kiddie Tax??

Thank you in advance for any wisdom!
 

#2
makbo  
Posts:
6840
Joined:
23-Apr-2014 3:44pm
Location:
In The Counting House
zeavran wrote:Either way, will the minor's income be subject to Kiddie Tax??

Yes, pretty sure since it applies to unearned income (not merely investment income). I don't have answers for other questions offhand, but can't think why rules for a minor would be any different from adult.
 

#3
Dennis2  
Posts:
816
Joined:
18-Feb-2016 11:08am
Location:
New York State
You need to know whether uncle was in distribution as at date of death because the rules are different. End result will likely be inherited IRA with distributions subject to kiddie tax.
 


Return to Taxation



Who is online

Users browsing this forum: fatherof3, JoJoCPA and 83 guests