I have received a lump sum from my ex-husband’s 401(k) plan as a beneficiary. Before receiving the amount, federal taxes were taken. What will happen when I file taxes this year? Will I have to pay federal taxes again on the amount?
Sometime prior to Jan. 31, 2020, you will receive a Form 1099-R from the retirement plan administrator. This form will show the gross amount of the distribution and the tax withholding. The gross amount is includible in income reported on your 2019 tax return on the line for pension and annuity income. The federal tax withheld amount is reported on your tax return on the line for tax withheld. The gross amount of the distribution is added to your other income to determine adjusted gross income and is, therefore, included in the calculation of income tax liability. The withholding amount, similar to federal income tax withheld on a W-2, will reduce this liability, resulting in either an overpayment (if withholding and credits exceed the tax liability) or a balance due (if tax liability exceeds withholding and credits).
As for having a ballpark figure, it is dependent on a variety of factors including your other income, deductions, etc., and is, therefore, impossible to determine given the information provided. If you would like an estimate or projection of your 2019 tax situation, I recommend that you contact a qualified CPA.
For more resources, check out PICPA’s Money & Life Tips, Ask a CPA, or CPA Locator.
Answered by: Alan M. Schapire, CPA, is a principal with Convergent Financial Strategies LLC in Wayne, Pa.