Taxability of 401(k) bequeath to Church

[DennisM]

If a client bequeaths a 401(k) account to a church, does the church pay any taxes on it?

I realize it's previously untaxed income and that individual beneficiaries would be taxable, but would a non-profit have to pay anything such as non-related business income???

[BOB W]

401k

The estate of the owner of the 401K would have to pay the tax, then the estate deducts the contribution to the church on the 1041.

The church would pay no taxes, just the estate. The estate should give the church the net after tax from the 401k otherwise the estate will be taking away monies due other beneficiaries. The church will probably complain as they typically want EVERY penny.

I JUST RE-READ YOUR QUESTION AND REALIZE THAT I'M NOT SURE HOW THIS WOULD BE HANDLED. PLEASE FORGIVE MY JUMPING IN..........

[Bees Knees]

By saying the client bequeaths a 401(k) account to a church, I assume that means the church is not the designated beneficiary. The estate probably is. In that case, it would be as Bob said: Estate reports tax on the distribution, and then takes a charitable contribution deduction for giving the money to the church. The church treats the contribution as any other contribution.

A side point: An estate cannot take a charitable contribution unless the decedent's will says to give the money to the church, as is the case here. The estate cannot decide on its own to use some of the estate money to make charitable contributions. Only the decedent's will can do that.

[DennisM]

Thanks, y'all.

The client is interested in making the church the beneficiary of his 401(k), so the $$ would go directly to the church. Sorry, I should have made myself more clear.

Basically, the client has been told by a financial planner with AMEX that if the leaves the 401(k) to the church as beneficiary, the church will have to pay taxes on the amount. Right or wrong???

[BOB W]

Sounds.....

..... like the church will pay the tax. Someone has to................

[DennisM]

Well, we have differing opinions on this, then. Any other input?