My father (70) is disabled and has advanced Parkinson's. He is living in an Assisted Living Facility, and his bills are adding up. I have a fully signed Medical and Financial Power of Attorney, and I need to know if I can get access to his 401K investments and get money to pay his bills. Am I allowed to do that? Would I need to contact an attorney to have that done?
If you don't fully understand POA be sure to see an elder law attorney to find out how to arrange all funds. That is an enormous help and your POA pays for that out of your Dad's funds. He will teach you how to set up accounts, give you testamentary papers to give banks, help walk you through how to sign things and how to pay and how to present your documents to all banks.
Everything should be done to avoid 401K withdrawals to last as they will be taxed and have tax consequences. It is very important your record keeping be meticulous on every penny in and every penny out with good file keeping. This is a legal financial fiduciary duty and that's why you need to know exactly how to proceed. See that attorney.
Withdrawals from 401k will be taxed as income and you should arrange to have the correct percentage from the distribution sent to the IRS and state tax authority as you make the distributions. This is easier than sending in estimated tax payments because withholding is always counted as being timely; if you take a distribution late in the year and send in an estimated tax payment, you may end up with a penalty.
Also, make sure you get information from the facility about what portion of dad's monthly bill is deductible as medical expenses.
Also, when in retirement, there is a certain order in which you should spend resources. Taxable should generally be spent first as capital gains taxes are usually lower than income taxes.
With his full POA he can act on his father's behalf. I've had to start giving my full POA to my husband's doctors, hospitals etc. so they will talk with me and not assume he understands everything. He has Alzheimer's. Many times those with the full POA don't always know where to turn or how to use it.
As others have said, definitely get all the plan information from the employer, talk to a financial advisor, and talk to a tax accountant. They, as a team, should be able to help you. Best wishes, and God bless!
While it may be useful / supportive to ask 'us' here about these things, you need to ask the financial institutions how to handle and get an attorney.
In other words, why are you asking us vs contacting an attorney?
These are legal matters that require professional legal advice and drawn up legal documentation giving you the authority you need.
And every state is different.
(copy and paste)
https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-disability#:~:text=More%20In%20Retirement%20Plans&text=A%20plan%20participant%20may%20receive,still%20be%20reported%20as%20income.
Anyways, don’t freak out. It will likely be easier than you think. Or at least, that’s what I’ve found.
If you know where his 401K is, I suggest you contact the company holding the 401k. Since he is 70, the withdrawals will not be penalized. However, the 401k can trigger a taxable situation. In addition, the way you draw it out is dependent upon the plan's rules (I got blindsided by this...)
Contact the plan's administrator to find out what is needed and how to withdraw the money. Be prepared to be on the phone for a bit.
If you have to draw it out as a lump sum and he does NOT have an existing IRA account that has been open for at least 5 years, do NOT agree to rolling it over to a new IRA until you have talked to a retirement specialist. The money in a new IRA account cannot be touched for 5 years without penalty.
If you do not have a financial counselor or a financial planner or a wealth advisor, I suggest that you get one. Talk to your friends and get their recommendations. It is important that you get one that is knows the rules of the state that your Dad is a resident in.
Also, his taxes will be effected by it - and as long as it is billed under medical expense then it can be written off his taxes (at least here in California). Check with his tax guy.