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Monday, August 21, 2006

Minimizing Tax Bite - Favorable Changes for 401k beneficiaries

Just read an article at Yahoo Finance that changes have been made recently related to the 401k beneficiaries under the Pension Reform Law. The new changes are more friendlier for the non-spousal beneficiaries who would not have to withdraw the entire money from 401k on the death of their benefactor. So basically, the new law would expand the period over which non-spousal beneficiaries can withdraw the money. So for example, instead of withdrawing the entire $100,000 from 401k at one time, which would result in higher tax payments in the year of the withdrawal, the non-spousal beneficiaries would be able to withdraw the money over their life expectancy. So most likely, as they would be withdrawing smaller sums of money every year, the taxes they would have to pay would hopefully be lower than if they had taken withdrawn the entire 401k pot. Of course, there are still many paperwork and other requirements that non-spousal beneficiaries will have to fill out. To me these changes are especially good, if some one can't leave money to his/her spouse for some reasons - now they can leave it to their children. Hopefully, the children would not have the needs to withdraw the money immediately and can withdraw it over time, while simultaneously minimizing their taxes.

posted by Ruby @ 7:27 AM

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