[Grahame]

My sister recently died. She had worked in US for past 9 years.I was the named beneficiary of her K401 currently valued at $46000
I am a UK citizen in living in the UK.What are my options? Should I take the cash? Will I be liable for tax.

[AtlantaTaxExpert]

First, my condolences on the death of your sister. Losing a family member is aways hard!

Normally, estates of this size would have NO tax consequences at all, but the 401K is considered a form of deferred compensation that was funded with pre-tax money and is therefore considered taxable upon distribution, whether it is distributed to the original 401K owner or to her heirs.

Because it is a 401K plan and NOT an Individual Retirement Arrangement (IRA), I believe that you have NO OPTION but to take the cash.

Offhand, since you are a non-resident alien, I believe that the distribution would be taxed at 30% (the default rate). Unless you submit a Form W-8BEN to the 401K custodian that cites a lower withholding rate, the custodian would withhold at 30% and you would have to file a Form 1040NR requesting a refund if the actual tax rate were lower.

All of this is based on a quick review of IRS Pub 901 and my current knowledge of the U.S.-U.K. Tax Treaty with NO detailed research.

I do not perform such detailed research without compensation due to the time and effort involved.