I inherited a $32,000 401K from my mother when she passed away. I had to use $13,000 of that money to pay for her funeral. I am now having to use the remaining $19,000 to purchase a mobile home for my disabled brother to live in and to renovate the condo he and my mother lived in prior to her death in preparation to sell. What will my tax consequences be?

ANSWER

The BIDaWIZ Team's Answer:

If you take the money out of the 401k and do not roll it into an inherited IRA fund, the 401k will be taxable income to you on your federal and state income tax returns. Most 401K plans are funded on a pre-tax basis which means your mother hasn't paid taxes on those monies. This is why you will owe taxes on the distribution. However, there will not be a penalty as this is an inherited 401k and will have a code of 4 on the 1099-R.