The penalty will be added to your tax due, or deducted from your refund. If your early distribution was related to COVID, the 10% penalty for taking early distributions from qualified retirement plans, including IRAs and 401(k)s, is waived. The waiver applies to distributions taken between January 1, 2020 and December 31, 2020. Up to $100,000 of distributions can avoid the penalty.
To qualify for the waiver, the distribution must be coronavirus-related. That means you, your spouse or a dependent must have been diagnosed with COVID-19. Or you experienced adverse financial consequences as a result of being quarantined, furloughed, laid off or having work hours reduced due to COVID-19. Also eligible are individuals who were unable to work due to lack of child care as a result of COVID-19. An individual whose business was closed or had reduced operating hours as a result of COVID-19 also is eligible.
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