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Can you amend an early withdrawal error?
I think I messed up royally and need assistance correcting the error. I qualify as an exemption from the early withdrawal penalty due to COVID-19. When I called to make the withdrawal I was unable to reach a real person, so I went online to do it. There was no option to add myself as an exemption and my Bing searches weren't much help in determining how you pay the penalty or exempt yourself. Against my better judgement, I went through with the process and completed the withdrawal (thinking I didn't have to pay the penalty until tax season). I later did some more searching and, while still confused, I am thinking the financial institution deducted the penalty from the payout. Can I amend this somehow, or am I just stupid?
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Retirement tax questions
Once the distribution is made and the taxes withheld all you can do is wait to file the 2020 return next year. However be aware, even though the distribution is exempt from the penalty it is still taxable income so having some withholding is the correct way for the plan administrator to handle the distribution.
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Retirement tax questions
For clarity, I can indicate that I'm exempt on the tax return and make the problem go away?
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Retirement tax questions
The exact questions to be answered in your scenario have yet to be devised for the 2020 tax program.
Wait.
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Retirement tax questions
What the financial institution did was do normal tax withhold of the default 10% for a distribution from a traditional IRA or the mandatory 20% minimum on a distribution from a qualified retirement plan. This is simply a down-payment toward whatever tax liability is eventually calculated on your 2020 tax return and the amount withheld will be credited on your 2020 tax return along with any other tax withholding shown on Forms W-2 or 1099. You'll avoid the 10% early-distribution penalty on your 2020 tax return by indicating that the distribution was a Coronavirus-Related Distribution and TurboTax will include the yet-to-be-released Form 8915-E.
Having taxes withheld reduces the chances of a tax underpayment penalty for not paying tax withholding or estimated taxes timely.