Grand Rapids Business Daily

What is best route for taking distribution of 401K as a beneficiary?

Mother passed in Sept 05 (she was 61) and I'm the beneficiary on her 401K accts. Trying to determine the best route to avoid paying high taxes. In the short term, I am looking at possibly using some monies from the accts to help fund a new business. I'm in my mid-30s. What are my options?, how soon do I need to act?, and what is the best route to avoid paying a bunch of taxes?

Public Comments

1. I would advise to speak with a financial advisor at the investment firm where the 401K is held. You may also seek advise from your own financial advisor.
2. All withdrawals are taxable, included in your annual income from all sources. You will not be "required" to take "mandatory" withdrawals until you are 70 1/2. The amount will be based on your life expectancy at that time.
3. A non-spouse beneficiary may distribute the assets over the life expectancy of the oldest beneficiary. You certainly can take it quicker than this. You will need to check with your mother's 401(k) provider and see if they have any special beneficiary rules. The best route to continue with the tax-deferred growth benefit of the 401(k) is to stretch the distributions out for as long as possible. Keep in mind, taxes should not be your only consideration. If you take the money more quickly, will you do something positive with this money?