I made a Coronavirus withdrawal from my 401K. I he...
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cyndee5101
Level 2

I made a Coronavirus withdrawal from my 401K. I heard I can claim the taxes over a 3 year period or claim the distribution over a 3 year period? Does anyone know?

 
13 Replies
DoninGA
Level 15

I made a Coronavirus withdrawal from my 401K. I heard I can claim the taxes over a 3 year period or claim the distribution over a 3 year period? Does anyone know?

Go to this IRS website for the Coronavirus Aid, Relief, and Economic Security (CARES) Act information - https://www.irs.gov/newsroom/coronavirus-relief-for-retirement-plans-and-iras

 

To be eligible for COVID-19 relief, coronavirus-related withdrawals or loans can only be made to an individual if:

  • The individual (or the individual’s spouse or dependent) is diagnosed with the virus SARS-CoV-2 or with coronavirus disease 2019 (collectively, COVID-19) by a test approved by the Centers for Disease Control and Prevention (including a test authorized under the Federal Food, Drug, and Cosmetics Act);
  • The individual experiences adverse financial consequences as a result of:
    • The individual being quarantined, being furloughed or laid off, having work hours reduced, being unable to work due to lack of childcare, having a reduction in pay (or self-employment income), or having a job offer rescinded or start date for a job delayed, due to COVID-19;
    • The individual’s spouse or a member of the individual’s household (that is, someone who shares the individual’s principal residence) being quarantined, being furloughed or laid off, having work hours reduced, being unable to work due to lack of childcare, having a reduction in pay (or self-employment income), or having a job offer rescinded or start date for a job delayed, due to COVID-19; or
    • Closing or reducing hours of a business owned or operated by the individual, the individual’s spouse, or a member of the individual’s household, due to COVID-19.

Taxes on distributions: Coronavirus-related distributions:

  • Are included in taxable income
    • Over a three-year period, one-third each year, or
    • If elected, in the year you take the distribution.
cyndee5101
Level 2

I made a Coronavirus withdrawal from my 401K. I heard I can claim the taxes over a 3 year period or claim the distribution over a 3 year period? Does anyone know?

Thanks.. so its up to me how I want to claim that income?

DoninGA
Level 15

I made a Coronavirus withdrawal from my 401K. I heard I can claim the taxes over a 3 year period or claim the distribution over a 3 year period? Does anyone know?


@cyndee5101 wrote:

Thanks.. so its up to me how I want to claim that income?


Yes.  The income has to be claimed on your 2020 tax return using the new IRS Form 8915-E.  You would be able to choose to report the distribution from the retirement plan over a three year period or the entire amount on your 2020 tax return.

dmertz
Level 15

I made a Coronavirus withdrawal from my 401K. I heard I can claim the taxes over a 3 year period or claim the distribution over a 3 year period? Does anyone know?

If you choose this option, the income will be added to AGI in 3 equal parts on your 2020, 2021 and 2022 federal tax returns via Form 8915-E included with each of those tax returns.

cyndee5101
Level 2

I made a Coronavirus withdrawal from my 401K. I heard I can claim the taxes over a 3 year period or claim the distribution over a 3 year period? Does anyone know?

OK... and Turbo Tax will automatically include that form? 

Also, if I choose to do this but then next year want to include all of the balance of that distribution can I do that as well?  So in other words, instead of including the next 1/3 of that distribution next year just include the balance of that distribution that's leftover?

DoninGA
Level 15

I made a Coronavirus withdrawal from my 401K. I heard I can claim the taxes over a 3 year period or claim the distribution over a 3 year period? Does anyone know?


@cyndee5101 wrote:

OK... and Turbo Tax will automatically include that form? 

Also, if I choose to do this but then next year want to include all of the balance of that distribution can I do that as well?  So in other words, instead of including the next 1/3 of that distribution next year just include the balance of that distribution that's leftover?


The From 8915-E will be included in the TurboTax program after the IRS releases the form and has certified that the form included in TurboTax meets the IRS requirements under the regulations.  Guidance has not yet been formally released by the IRS.

 

IRS website - https://www.irs.gov/newsroom/coronavirus-related-relief-for-retirement-plans-and-iras-questions-and-...

The Treasury Department and the IRS are formulating guidance on section 2202 of the CARES Act and anticipate releasing that guidance in the near future. IRS Notice 2005-92 PDF, issued on November 30, 2005, provided guidance on the tax-favored treatment of distributions and plan loans under sections 101 and 103 of the Katrina Emergency Tax Relief Act of 2005 (KETRA) as those provisions applied to victims of Hurricane Katrina. The Treasury Department and the IRS anticipate that the guidance on the CARES Act will apply the principles of Notice 2005-92 to the extent the provisions of section 2202 of the CARES Act are substantially similar to the provisions of KETRA that are addressed in that notice.

cyndee5101
Level 2

I made a Coronavirus withdrawal from my 401K. I heard I can claim the taxes over a 3 year period or claim the distribution over a 3 year period? Does anyone know?

Thanks 

 

Also, if I choose to do this but then next year want to include all of the balance of that distribution can I do that as well?  So in other words, instead of including the next 1/3 of that distribution next year just include the balance of that distribution that's leftover?

DoninGA
Level 15

I made a Coronavirus withdrawal from my 401K. I heard I can claim the taxes over a 3 year period or claim the distribution over a 3 year period? Does anyone know?


@cyndee5101 wrote:

Thanks 

 

Also, if I choose to do this but then next year want to include all of the balance of that distribution can I do that as well?  So in other words, instead of including the next 1/3 of that distribution next year just include the balance of that distribution that's leftover?


As stated the IRS has not yet given guidance on this type of withdrawal, other than what has already been posted.  Further information will be available latter this year or early in 2021.

dmertz
Level 15

I made a Coronavirus withdrawal from my 401K. I heard I can claim the taxes over a 3 year period or claim the distribution over a 3 year period? Does anyone know?

"So in other words, instead of including the next 1/3 of that distribution next year just include the balance of that distribution that's leftover?"

 

No.  Your only choices will be to include the entire amount on your 2020 tax return or to apply it in 3 equal parts on your 2020, 2021 and 2022 tax returns via Form 8915-E.  This is dictated by section 2202(a)(5) of the CARES Act. 

cyndee5101
Level 2

I made a Coronavirus withdrawal from my 401K. I heard I can claim the taxes over a 3 year period or claim the distribution over a 3 year period? Does anyone know?

Ok...thank you

gtaylor15017
New Member

I made a Coronavirus withdrawal from my 401K. I heard I can claim the taxes over a 3 year period or claim the distribution over a 3 year period? Does anyone know?

I imported my withdrawals from my IRA into TurboTax 2020.   I need to spread the withdrawals over 3 years. How can I do that using the software?  I don't see an option.

 

Thanks.

gtaylor15017
New Member

I made a Coronavirus withdrawal from my 401K. I heard I can claim the taxes over a 3 year period or claim the distribution over a 3 year period? Does anyone know?

I see my question has already been answered regarding using the form 8915-E.  I post here in October says the IRS has not put out the form yet.  Any recent update on this issue?  Should I assume I should keep updating my TurboTax instance until I see the form in an update?

 

Thanks.

dmertz
Level 15

I made a Coronavirus withdrawal from my 401K. I heard I can claim the taxes over a 3 year period or claim the distribution over a 3 year period? Does anyone know?

There has been no update by either the IRS or TurboTax.  There is really no way to predict when Form 8915-E will be available, so you'll need to keep checking to see if TurboTax presents the necessary questions for reporting a CRD.

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