Q: Will I have to pay additional tax and do I have to pay the 20% tax now on a beneficiary 401k
My dad died at 78 and he had and I was the benificery of his 401K but didnt find out till 5 years later. I am on SSI and I need the money to pay my property tax and pay for my wooden fence that was damage due to Hurricane Irma. The money in the 401K was a little over 5000.00 it was left into his job but put in my name listed as a beneficiary 401k. The place wants to charge me 10% to take it out and another 10% on top which total 20%. I do not work and I get SSI 750.00 and nothing else. Do I have to pay the 20% and will I have to pay more taxes during income tax file time
A: When you withdraw funds from an inherited IRA, the money is subject to income tax to the beneficiary that withdraws the IRA. However, you should not be required to pay the 10% penalty for the early withdrawal of these funds. Therefore, the first 10% withholding would be a good idea in case you owe taxes after deductions on the distribution, but the additional 10% which would be to cover the penalty if there was one is not necessary. I would have them withhold the first 10% even though you may owe no tax based on your income levels.
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