Inherited 401k Questions

[JHUMPHCPA13]

The decedent died in 2017 but the estate was not probated until January 2021.  The only asset is a 401k valued at approximately $100,000 (up from approx. 83k at time of death).  There were no distributions and the executor just liquidated the account to distribute to the heirs.  Does a return need to be filed and if so should it be a 1041 or a 706?

[sjrcpa]

Who was named as the IRA beneficiary(ies)?

Or was no one and therefore it defaulted to the estate?

Is it IRA or 401(k)?

[JHUMPHCPA13]

Sorry it's a 401k.  My understanding is he died with no will so the sister is the executor and is distributing it evenly to his surviving children.

[sjrcpa · Accepted solution]

If that's correct, the distribution went to the estate. Then the estate distributed it. So a 1041 is needed. Hopefully receipt and distribution occurred in same year.

706 is only needed when the value of the estate exceeded $10 million as indexed as of the date of death. And it would be late.

[JHUMPHCPA13]

Thank you!

[sjrcpa]

You're welcome.

[JHUMPHCPA13]

If the receipt and distribution occurred the first quarter of 2021, should the estate file a 2020 tax return or should they wait to file a 2021 return?  The estate was created in January of this year.

[sjrcpa]

The estate was created in 2017 when he died.

Since no return has ever been filed, you can select the estate year end on the first filing. I'd go for a 2021 return.

[qbteachmt]

"My understanding is he died with no will so the sister is the executor and is distributing it evenly to his surviving children."

The question for Beneficiaries on a financial account such as Retirement is because that bypasses a will. It takes precedence.