Are there any special tax rules applicable to beneficiaries?
Distributions paid to a beneficiary are taxable to that beneficiary; distributions paid to an estate are taxable to the estate. Distributions to a beneficiary from the 457 plan or the 401(k) plan are reported on a 1099-R form in the beneficiary’s name. Lump sum distributions from either plan to the participant’s spouse may be rolled over to an IRA or to any other eligible tax-deferred plan in the spouse’s own name. Lump sum distributions from the 401(k) plan issued after a participant’s death may be eligible for forward averaging if the participant would have been eligible for forward averaging. Beneficiaries are not subject to the 401(k) plan’s early distribution tax penalty, regardless of the participant’s age at the time of death. For more information, refer to IRS Publication 575, Pension and Annuity Income.
