Can I do early withdrawal of retirement funds 401K (59 1/2 years old or younger) without 10% penalties due to covid19?

[Texas Roger]

The decision whether to allow the withdrawal without a penalty rests with the employer. It can be an optional plan with the employer. Check with your employer to see if they are allowing it. 

[RobertG]

In general, section 2202 of the CARES Act provides for expanded distribution options and favorable tax treatment for up to $100,000 of coronavirus-related distributions from eligible retirement plans (certain employer retirement plans, such as section 401(k) and 403(b) plans, and IRAs) to qualified individuals, as well as special rollover rules with respect to such distributions.

It also increases the limit on the amount a qualified individual may borrow from an eligible retirement plan (not including an IRA) and permits a plan sponsor to provide qualified individuals up to an additional year to repay their plan loans.

You are a qualified individual if –

• You are 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;

• Your spouse or dependent is diagnosed with SARS-CoV-2 or with COVID-19 by a test approved by the Centers for Disease Control and Prevention;

• You experience adverse financial consequences as a result of being quarantined, being furloughed or laid off, or having work hours reduced due to SARS-CoV-2 or COVID-19;

• You experience adverse financial consequences as a result of being unable to work due to lack of child care due to SARS-CoV-2 or COVID-19; or

• 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.

Under section 2202 of the CARES Act, the Treasury Department and the IRS may issue guidance that expands the list of factors taken into account to determine whether an individual is a qualified individual as a result of experiencing adverse financial consequences. The Treasury Department and the IRS have received and are reviewing comments from the public requesting that the list of factors be expanded.

The 10% additional tax on early distributions does not apply to any coronavirus-related distribution.

Please see the IRS website: Coronavirus-related relief for retirement plans and IRAs questions and answers for further information.

[dsueevans62]

How do you claim COVID for an earlier 401 withdrawal?  Is it dependent on the code listed on the 1099 form?

[dsueevans62]

How can I claim COVID for early withdrawal on 401 so I don't get hit with the 10% extra pentaly for earlier withdrawal.  My form shows 1 - early distribution, but it was due to COVID.

[SamS1]

The form you need will be available soon.  Form 8915-E: Qualified 2020 Disaster Retirement Plan Distributions and Repayments, which is used for COVID-related early distributions, will be e-fileable starting 2/24.  The IRS is updating form 5329’s instructions to make it clear that COVID related exceptions cannot use 5329 and should use the new 8915-E.

The pandemic has affected your taxes in many ways. Including reporting in TurboTax the amount of stimulus money you received. Click Here for more information on how the Pandemic affected your 2020  taxes.

[taekwondo54]

Completed form 8915-E 

Early withdrawal of annuity 10% has not been waived.

What's the appropriate step to remove the penalty?

Thanks,

Paul Burch

[LinaJ2020]

If you are using TTO, there are no known issues.    If you are using the desktop option, we are working to resolve this issue.  Click here: Covid related questions

To enter your Form 1099-R in the program, follow here:

In TurboTax online,

• Sign in to your account and select Pick up where you left off
• From the upper right menu, select Search and type in 1099r and Enter
• Select the Jump to 1099r
• Follow prompts to answer Covid related questions.

If you are under age 59 1/2, the distribution from the retirement accounts is considered as an early withdrawal.  Generally, you are subject to an additional 10% penalty of your entire distribution unless you met certain criteria.  Due to the Section 2202 CARES Act, if your distribution is related the Covid-19, you will not be liable for this additional penalty.  For more information from the IRS, click here: Covid Relief.  If your distribution is not related to the Covid, you will need to pay the penalty. 

@taekwondo54