You may have two separate exceptions to the early withdrawal penalty.
Question 3 in this IRS FAQ lists who is a qualified individual under the Cares Act: Coronavirus Relief
Final guidance on this has not been issued, so there may be additional qualifications added.
If you do qualify, you will report this on a Form 8915-E. The IRS has not yet finalized the Form 8915-E for retirement plan distributions under the CARES act. So this form cannot be included in the TurboTax program. You will not be able to proceed until the form is available.
The IRS has not communicated when the form will be finalized for inclusion on the 2020 federal tax return.
We estimate it will be sometime in February 2021 before the form is available. You can watch this link for the form availability. Currently, the form is not listed here since there is no estimated date. Once there is, you will find the form listed with the date available.
I'm not sure how much you withdrew. If you qualify, the Cares act allows for up to $100,000 penalty free. If this exception does not work for you, there is a new provision this year which allows for you to take up to $5,000 out without penalty for a qualified birth. This would be entered differently.
To enter the exception for the penalty, follow these steps:
- Several questions after entering your 1099-R, you will get a screen that says: Let's see if we can reduce your early withdrawal penalty
- Select Continue
- Enter $5,000 in the area for Another reason, select Continue
- The next screen should remove the penalty.
For the Qualified Birth or Adoption Distributions, the IRS requires you to attach a statement that provides the name, age, and tax id number of the child or eligible adoptee. Because of this requirement, you will need to paper file your return.
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