Financial advice for an inherited 401K

[bluebayou]

per this article:

If the person you inherited the 401(k) plan from was not yet age 70 ½, the 401(k) plan will allow one or both of the options below:

The 401(k) plan may require you to take all of the money out of the plan no later than December 31 of the fifth year following the year of the person’s death. You could take a little out each year, or wait until the last year to take it all. You will pay regular income taxes on the amount withdrawn, so you may want to take more out in years where you expect to be in a lower tax rate.

https://www.thebalance.com/inherited-401k-distribution-and-withdrawal-rules-2388269

[Madison85]

Kiddie tax/trust tax rate is 37% for income over $12,500.

The RMDs didn’t begin in the year after death so it appears as though the entire balance needs to be withdrawn between now and 12/31 of the year after 5 years from death. If subject to kiddie tax then much of it could be taxed at up to 37% plus applicable California rate (up to 9.3%?).

[momsquad]

I researched financial planners in the Bay Area once and this guy made the top of the list: https://financialconnections.com/team/brian-pon-financial-planner/
I have no experience with him, but generally enrolled agents are a good choice for complex tax situations.

[Twoin18]

In terms of addressing kiddie tax issues, wouldn’t it be quite straightforward to be self-supporting in the year(s) where substantial distributions take place, just by using some of the proceeds to pay for college?

[Madison85]

I believe that the self-support source needs to be earned income.

My understanding is that unless married or both parents are deceased, a college student under age 24 will be able to avoid the kiddie tax if he/she provides over half of his/her own support from his/her own EARNED income (i.e., wages/salary, etc., and not income from an inherited IRA distribution).