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Returning Member

401k Early Withdrawal 2020

Hello,

I wanted to confirm that if I withdraw my 401k in 2020 (early withdrawal) that there would be zero 10% penalty for the first $100,000 based on the stimulus package recently approved? I don't need to "qualify" for anything, correct? The "no early penalty" applies to all withdrawals?

 

Also, how does the "pay the taxes over three years" piece work?

 

Thanks,

Brian

4 Replies
Highlighted
Level 15

401k Early Withdrawal 2020

The early-distribution penalty is eliminated only on early-distributions that qualify as coronavirus-related distributions.  Distributions that do not qualify are still subject to the early-distribution penalty unless one of the permanent exceptions applies:

 

(A) CORONAVIRUS-RELATED DISTRIBUTION.—Except as provided in paragraph (2), the term “coronavirus-related distribution” means any distribution from an eligible retirement plan made—

(i) on or after January 1, 2020, and before December 31, 2020,

(ii) to an individual—

(I) who is diagnosed with the virus SARS–CoV–2 or with coronavirus disease 2019 (COVID–19) by a test approved by the Centers for Disease Control and Prevention,

(II) whose spouse or dependent (as defined in section 152 of the Internal Revenue Code of 1986) is diagnosed with such virus or disease by such a test, or

(III) who experiences adverse financial consequences as a result of being quarantined, being furloughed or laid off or having work hours reduced due to such virus or disease, being unable to work due to lack of child care due to such virus or disease, closing or reducing hours of a business owned or operated by the individual due to such virus or disease, or other factors as determined by the Secretary of the Treasury (or the Secretary's delegate).

 

Similar to Forms 8915-A and 8915-B for qualified disaster distributions, the IRS will certainly need to introduce a new form for optionally spreading the income of a coronavirus-related distribution equally over the 2020 through 2022 tax years.

Highlighted
Returning Member

401k Early Withdrawal 2020

Do you know how one is to prove they qualify? For example, if my wife is unable to work due to lack of child care, how would I prove this during the 2020 tax season? 

 

Thanks so much

Highlighted
Level 15

401k Early Withdrawal 2020

I suspect that proof would only be required if your tax return gets audited.  Retain in your tax records any information needed to support your claim.

Highlighted
Level 15

401k Early Withdrawal 2020

Also....if you had made Child Care payments before this all started...keep printed/dated records of those payments in a folder too  (Check cancellations, bank account, or Charge account statements printed out)...to show that you were paying for childcare earlier.