Hello, I have money in my 401K plan in the office where I worked before marriage 10 years ago. I have my parents listed as beneficiaries in it. They are now in the US. I was wondering can I withdraw the money and give it to them? But what about taxes? In this old age it would help them. I have never given the any money before as they say parents should never take money from kids. So whatever income before marriage and after I have always given to my husband. Now I feel guilty. This is the only money that I have from before marriage.. Can I withdraw and give it to them? How do I avoid taxes and penalties? Or can I transfer to their name? Will it show up in tax returns? Not that I don't want to hide from my husband but it is money before marriage.. Why should I tell him in the first place? I would never give my parents money earned after marriagge. Please advise... confused... I was just searching we can "gift" 401 K money to relatives to avoid taxes? How does that work? Anyone did it before? Any other suggestions?
It is best to not fiddle with retirement accounts unless accompanied with proper guidance. Withdrawing from any such account before retirement should be a last resort. Generally speaking, if one does not use one's retirement funds in one's lifetime, the most productive use of them is for the children to inherit it. Of course, there are exceptions to this. Read up about 401K beneficiary rules. Nolo.com is a good source and easy to understand. For starters: A special rule applies to 401(k) plans and other “qualified plans” governed by federal law: Your spouse is entitled to inherit all the money in the account unless he or she signs a written waiver, consenting to your choice of another beneficiary. It’s not enough just to name someone else on the beneficiary form that your employer gives you. Source Keep a cool head and set aside tons of time when researching such things. What about 401K from before marriage will be the next question that comes to mind. Do we need a written consent from the spouse to withdraw money from one's 401K from before marriage? Can parents continue to be the beneficiary on this 401K? Does a beneficiary chosen before marriage override the spouse's right on the 401K? It gets confusing. What I gathered is this: If the couple is divorcing, one set of rules apply to the pre-marriage 401K. If the couple is not divorcing, a different set of rules. Unless the old parents need money right now and there is no other way to provide them that money, do not withdraw from a 401K. At the most, see whether rolling it over into an IRA helps, and whether to do this in one shot or in chunks. Buying something on Amazon, buying an expensive item for oneself, or even giving one parents a huge sum of non-401K money, are OK to do based on thoughts and feelings like the ones quoted above. But for things like retirement accounts, and that too accounts that have grown over 10 years, don't mix emotions with financial decisions. Decide with a cool head, and for solid reasons that make financial sense for the family.
Unless you can satisfy some narrow categories for hardships or home purchase you will always have to pay taxes and penalties for early withdrawals from 401k. And even in situations where you don’t have to pay fees it is considered a loan and you have to replace the money. If you are no longer working at that employer then there are rules for that too. Read the IRS guidelines.
Simple answer: You cannot rollover 401k to your parents without avoiding taxes and penalties Reason: It defeats the purpose for which 401k was created. It is for YOUR retirement, not for your beneficiaries when you are alive. You can wish whatever you want but any withdrawal from your 401k will be taxed on top of penalties. If you really want to give the money, withdraw (you will lose ~30%) and give it to them.
Your thought is very good, but you cannot avoid the tax. You should have thought of it while getting married. If your husband is not at all okay with you helping them out, then don't do it. Unnecessary headache for everyone. Either you talk to him or drop the idea. Too bad women don't think of all this earlier, we just assume things will work out.
Married, and filing the annual Tax Returns JOINTLY -- means that the OP&Husband is one tax paying entity. This is the government's way of recognizing the happy union. All tax liabilities are individually owned as well as jointly owed. No Taxable event, such as withdrawals from IRA or 401K, of one party can be held secret from the IRS, and the IRS would tell that to the other party. Premarital 401K beneficiaries are automatically voided when getting married; however, upon the death of the 401K owner, the transfer to spouse will be messy. The spouse has to make a legal claim to the balance, and it would take much time. If causing this delay is unintentional by the decedent, then a change-of-beneficiary should be done right away. Online or with a paper form. A good way to give a chunk of money to parents is to Tell Husband to get a loan equal to the current balance of 401K, and "loan that money" to the in-law-parents at zero interest. Then, the in-law-parents would be forgiven 15K or whatever the annual maximum gift-limit is each year until the loan is fully paid off. [$15K is the gift limit maximum for 2019] Note: In the USA a gift (beyond the annual maximum) is taxable to the gift-giver. In many other countries with a gift-tax, the receiver would be taxed. In the above example, the loan would be returned in annual installments that are equal to the maximum tax-free level of gift, until it is fully paid off. Added Later: some answers to questions in the following quote...
You will need to withdraw this money and pay taxes and early withdrawal penalty. I am not sure why wouldn’t you give money to your parents that you earned post marriage. They are your parents. If you feel that they need money, talk to your husband and give it to them. If your husband is not on board, save money from each paycheck in a separate account and give that to your parents. This could be your fun money that you save instead of spending.
No, personally I won’t touch 401k. Stocks go up and down, but in long term you will be fine leaving the money where it is.
There are a few more business days in 2020. The CARES Act in USA allows penalty-free withdrawals during the Tax-Year 2020, for people who are seriously financially affected by the Corona Virus infection related economic downturn. Although the CARES act is to help such people who have lost jobs/healthcare, people who cannot pay rent/mortgage and facing eviction, etc.. there is no need to have, or provide proof of, such misfortunes to withdraw money penalty-free from 401K or IRA retirement savings in the year 2020. You would owe Income Taxes only. Apparently very few have taken advantage of this penalty-free period to withdraw money from retirement accounts. source: The CARES Act changed all of the rules about 401(k) withdrawals. Here's everything you need to know. Even ex-employees and retired persons are allowed to re-allocate the 401 savings according to their personal risk tolerance. If E-for-I fears that Stocks-will-go-down, and does not want to take that risk, she may choose to move her 401K into Treasury bonds, or Cash within the 401K menu of investment options. "In the long term" is a phrase whose meaning varies based on personal circumstances.
