If you directly impacted by the pandemic will be able to withdraw up to $100k from their retirement accounts without facing the 10% early withdrawal penalty.
Also, you can choose to have the distribution taxed over 2020, 2021, and 2022 instead of only in 2020. If you choose to split it, then each year $4,000 are included in your taxable income.
You qualify if:
- You, your spouse, or your dependent are diagnosed with COVID-19
- You experience adverse financial consequences as a result of being quarantined, furloughed, or laid off or having work hours reduced because of COVID-19
- You’re unable to work due to child care closure or hour reduction because of Covid-19
- You experience adverse financial consequences as a result of closing or reducing hours of a business that you own or operate due to SARS-CoV-2 or COVID-19.
You do not have to pay taxes twice. The withheld federal taxes from Form 1099-R will be carried to line 25b and be credited towards any taxes due on your 2020 tax return. Any state taxes withheld will be carried to your state return. When you enter your 1099-R it calculates the correct tax due on the distribution.
You’ll have three years to pay back the funds you withdrew, without the amount impacting that year’s cap on contributions. If you pay back the amount within that time, you’ll be able to claim a refund on those taxes paid when you file an amended tax return. Please see IRS Coronavirus-related relief for retirement plans and IRAs for more details.
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