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dexsting
New Member

401(k) early withdrawal due to COVID. Is the 3 year deferment 3 equal payments or can it be something else? Is the tax based on this year's income only?

Basically
3 Replies
Opus 17
Level 15

401(k) early withdrawal due to COVID. Is the 3 year deferment 3 equal payments or can it be something else? Is the tax based on this year's income only?

The draft version of form 8915-E only allows the distribution to be split into 3 equal installments.  If you take the split, then 1/3 the distribution will be added to your income for 2020.  Your tax for 2020 is based on the combined total of all your income, deductions, dependents and credits for 2020.

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
macuser_22
Level 15

401(k) early withdrawal due to COVID. Is the 3 year deferment 3 equal payments or can it be something else? Is the tax based on this year's income only?


@Opus 17 wrote:

The draft version of form 8915-E only allows the distribution to be split into 3 equal installments.  If you take the split, then 1/3 the distribution will be added to your income for 2020.  Your tax for 2020 is based on the combined total of all your income, deductions, dependents and credits for 2020.


That is only one of the reasons for the 8915-E.    It also allows a COVID related distribution in the first place (and eliminates the early distribution penalty if that applies) even when  the distribution was taken in cash and not going to be paid back or tax spread over 3 years.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
Opus 17
Level 15

401(k) early withdrawal due to COVID. Is the 3 year deferment 3 equal payments or can it be something else? Is the tax based on this year's income only?


@macuser_22 wrote:

@Opus 17 wrote:

The draft version of form 8915-E only allows the distribution to be split into 3 equal installments.  If you take the split, then 1/3 the distribution will be added to your income for 2020.  Your tax for 2020 is based on the combined total of all your income, deductions, dependents and credits for 2020.


That is only one of the reasons for the 8915-E.    It also allows a COVID related distribution in the first place (and eliminates the early distribution penalty if that applies) even when  the distribution was taken in cash and not going to be paid back or tax spread over 3 years.


Sure, but the question was about the 3 year split. 

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*

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