Disability exemption on retirement and 401k COVID-19 CARES Act distributions

[ellis6970]

My husband had to retire last year because of Covid-19 complications and total and permanent disability. His last day at work was September 15, 2020 and he was disabled as of September 16, 2020. He received his retirement and 401k in a lump sum. We elected to spread the $100,000 excess over 3 years with the CARES Act. We were still assessed a 10% penalty on the other part of the distribution. I didn't know that being disabled exempted that 10% penalty. Do I need to file a 1040x? How else do I report the change? Will we receive a refund of the 10% early penalty withdrawal that was in excess of the $100,000?

[MinhT1 · Accepted solution]

If your husband was totally and permanently disabled, he is exempted from the 10% penalty.

Please read this TurboTax Help topic for more information.

You should amend your 2020 tax return to obtain a refund of the penalty. 

In the amendment form, revisit your form 1099-R.

1. On the summary page Review your 1099-R Info, click Continue
2. Follow the interview until you arrive at the page titled Let's See If We can Lower your Tax bill and click Continue
3. Continue until you get to a page titled These Situations May Lower Your Tax Bill
4. Enter the amount of your distribution in the box next to Permanent Disability and click Continue
5. Your early withdrawal penalty will be waived.

[ellis6970]

Good morning. Thank you for your clear and thorough answer. When I follow the steps given to amend my 2020 taxes, it quickly shows 2020 on the left side. Then, it logs out and returns to the login screen. I have tried this many times. Is the 1040x for 2020 available now on TurboTax online?

[ellis6970]

Good morning. Thank you for your clear and thorough answer. When I follow the steps given to amend my 2020 taxes, it quickly shows 2020 on the left side. Then, it logs out and returns to the login screen. I have tried this many times. Is the 1040x for 2020 available now on TurboTax online?

[MinhT1]

The 1040X is available for 2020. Please follow carefully the instructions to amend.

You have to be logged in your TurboTax account to amend. and make sure that you used the same account (same username) both in 2020 and 2021.

[ALL136]

Are the disability retirement payments received prier to reaching the minimum retirement age still taxed as wages?

ALL

[Opus 17]

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@ALL136 wrote:

Are the disability retirement payments received prier to reaching the minimum retirement age still taxed as wages?

ALL

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The original question you are following was about 401(k) distributions, they are never taxed as wages.

The IRS says "If you are retired on disability, benefits you receive under your employer's disability retirement plan are considered earned income until you reach minimum retirement age. However, payments you received from a disability insurance policy that you paid the premiums for are not earned income."