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Author: WallyJr One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 25265  
Subject: Re: 401K and K-1 taxes Date: 8/5/2005 2:37 PM
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I now have a Self Directed Investment Account tied to my 401K.
I like good paying dividend stocks, but most of these are
partnerships with K-1 forms, and some are from Canada.

So, am I in for a mess of tax paperwork this year?
Is this still income if held in a 401K?
What about reimbursement of Tax Withheld at the source?
(FED, State, or Canadian Tax)


First, I really hope that you are the sole participant in the 401(K) or are the trustee where you have some say over the administration of the plan, otherwise both of them are not going to be happy with you.

Back in March & April, there were discussions on the Tax Stratagies board on holding these types of investmemts in an IRA and it aslo aplies to 401(K)'s.

The 401(K) is the owner of the investments, you are not. The 401(K) may or may not be required to file tax returns (a 990-T for federal and fiduciary return(s) for the state(s)). It is not the custodian who is responsible for filing these returns, it's the trustee's duty.

If the 401(k) owns the investments, the income is the 401(K)s and any foreign tax, federal and state withholding belong to the 401(K) not you.
In general, any benefit of the foreign taxes withheld are lost in 401(K)s and IRAs.

By owning these investments in a 401(K), you have added complications and added expense to the 401(K) plan. If you have no control over the plan, then you're at the mercy of whoever runs the plan.


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