Retirement savers were allowed to withdraw, for Covid-related reasons, up to $100,000 from qualified accounts without paying the usual 10% early-withdrawal penalty if they were under age 59½.
While you can spread the income across three years, you need to account for at least one-third of the taxes due on your 2020 return.
You also may need to take extra steps to ensure the withdrawal is qualified, if the tax form you receive doesn’t reflect that
You should receive a Form 1099-R that shows the amount you withdrew from your eligible retirement account. Remember, the IRS receives a copy, as well.
On the form, there should be a distribution code in Box 7. If the code listed is “2,” it signifies that the amount you received in 2020 from your plan was for a qualified reason under the Cares Act.
If there is a “1” in the code box, however, you’ll need to fill out a Form 8915-E to certify that your distribution should qualify under the CARES Act.
