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todd-langeland
New Member

I took a withdrawal from 401 k using the covid provisions to pay off a loan i had on my 401k to essentially get rid of the loan payment. anything special i should report?

Is there any tax benefits or special reporting i should do since the withdrawal went back into the 401k to repay the loan?
48 Replies
macuser_22
Level 15

I took a withdrawal from 401 k using the covid provisions to pay off a loan i had on my 401k to essentially get rid of the loan payment. anything special i should report?

Covid related distributions must be reported on the new 8915-E form.

 

See below for a link to sign up for an email when the form is ready.

This form is necessary to report COVID related distributions from IRA's and other retirement plans to report the distribution, pay it back over 3 years or spread the tax over 3 years.

A COVID-19 related distribution is reported on a new 8915-E form that is not yet available and there is no estimated release date since the form is still in the draft state at the IRS. There is no telling how long it will take the IRS to make the electronic form available.

The draft paper form 8915-E is here:

https://www.irs.gov/pub/irs-dft/f8915e--dft.pdf
https://www.irs.gov/pub/irs-dft/i8915e--dft.pdf

Also to see if you qualify for a COVID-19 related distribution see:
https://www.irs.gov/newsroom/coronavirus-related-relief-for-retirement-plans-and-iras-questions-and-...

See this TurboTax FAQ to sign up for an e-mail when the form is ready.
https://ttlc.intuit.com/community/tax-topics/help/why-am-i-getting-getting-a-10-penalty-on-my-1099-r...

**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.**
ColeenD3
Employee Tax Expert

I took a withdrawal from 401 k using the covid provisions to pay off a loan i had on my 401k to essentially get rid of the loan payment. anything special i should report?

Yes. You took a distribution, regardless of how you spent the money. You can see in the other post how to handle the distribution for your best benefit. 

 

Loans and withdrawals from workplace savings plans (such as 401(k)s or 403(b)s) are different ways to take money out of your plan.

  • A loan lets you borrow money from your retirement savings and pay it back to yourself over time, with interest—the loan payments and interest go back into your account.
  • A withdrawal permanently removes money from your retirement savings for your immediate use, but you'll have to pay extra taxes and possible penalties.

Those who qualify as individuals directly impacted by the pandemic will be able to withdraw up to $100k from their retirement accounts without facing the 10% early withdrawal penalty.

You qualify if:

  • You, your spouse, or your dependent are diagnosed with COVID-19
  • You experience adverse financial consequences as a result of being quarantined, furloughed, or laid off
  • You had work hours reduced to COVID-19
  • You’re unable to work due to child care closure or hour reduction

The distribution would be taxed over 2020, 2021, and 2022. You’ll have that time to pay back the funds you withdrew, without the amount impacting that year’s cap on contributions, and if you pay back the amount within that time, you’ll be able to claim a refund on those taxes.

 

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jackseiple3
New Member

I took a withdrawal from 401 k using the covid provisions to pay off a loan i had on my 401k to essentially get rid of the loan payment. anything special i should report?

Is Turbotax any closer to updating the Covid 401k distribution rules (Cares Act)?  Started my taxes this weekend and still do not see an update to explain how this should be handled.  Was hoping to complete the tax filing before I forget to do it.

 

Thanks,

 

Jack

PattiF
Employee Tax Expert

I took a withdrawal from 401 k using the covid provisions to pay off a loan i had on my 401k to essentially get rid of the loan payment. anything special i should report?

Here is a link to an IRS site with details of the CARES Act and Retirement.

 

There have been delays with the release of the form with the IRS.

 

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.

 

macuser_22
Level 15

I took a withdrawal from 401 k using the covid provisions to pay off a loan i had on my 401k to essentially get rid of the loan payment. anything special i should report?


@jackseiple3 wrote:

Is Turbotax any closer to updating the Covid 401k distribution rules (Cares Act)?  Started my taxes this weekend and still do not see an update to explain how this should be handled.  Was hoping to complete the tax filing before I forget to do it.

 



The TurboTax 8915-E should be available on Feb. 24 (pending IRS approval by then).

The IRS just finalized the form on Feb 11. TurboTax must now submit their 8915-E software to the IRS for testing to be sure that both TurboTax and the IRS -file computer are comparable. That process usually takes the IRS 2-3 weeks for approval to release the new for to the public.

See below for a link to sign up for an email when the form is ready.

This form is necessary to report COVID related distributions from IRA's and other retirement plans to report the distribution, pay it back over 3 years or spread the tax over 3 years.

A COVID-19 related distribution is reported on a new 8915-E form.

See this TurboTax FAQ to sign up for an e-mail when the form is ready.
https://ttlc.intuit.com/community/tax-topics/help/why-am-i-getting-getting-a-10-penalty-on-my-1099-r...

**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.**
dnich09
New Member

I took a withdrawal from 401 k using the covid provisions to pay off a loan i had on my 401k to essentially get rid of the loan payment. anything special i should report?

All, for what is worth, if you started the section of Turbotax covering the 401k early withdrawal section and you wish to update that section with the latest COVID early withdrawal questions and potential reductions on penalties on Turbotax, then you will need to delete the previously created entry for the 401k withdrawal and start a new entry that can incorporate Turbotax's updates to that section.  The Turbotax guidance is not clear on this, and this is what worked for me.  Hope this helps.  I will not be able to respond to any questions.  

Mpitchford
New Member

I took a withdrawal from 401 k using the covid provisions to pay off a loan i had on my 401k to essentially get rid of the loan payment. anything special i should report?

How do you choose to pay the covid taxes back over 3 years? The help content says you can report the income over three years and gives the example of, if you withdrew $15,000 in 2020 for Covid, you could report 5,000 in income each year for the next 3 years. Does this mean we change the amount we withdrew on our 1099R form to reflect only 1/3 of this income? There are no directions on HOW to report this income over 3 years. 

macuser_22
Level 15

I took a withdrawal from 401 k using the covid provisions to pay off a loan i had on my 401k to essentially get rid of the loan payment. anything special i should report?


@Mpitchford  wrote:

How do you choose to pay the covid taxes back over 3 years? The help content says you can report the income over three years and gives the example of, if you withdrew $15,000 in 2020 for Covid, you could report 5,000 in income each year for the next 3 years. Does this mean we change the amount we withdrew on our 1099R form to reflect only 1/3 of this income? There are no directions on HOW to report this income over 3 years. 


No - that is done when you enter the 1099-R and answer the follow up questions about COVID.

 

Enter a 1099-R here:

Federal Taxes,
Wages & Income
(I'll choose what I work on - if that screen comes up)
Retirement Plans & Social Security,
IRA, 401(k), Pension Plan Withdrawals (1099-R).

OR  Use the "Tools" menu (if online version left side) and then "Search Topics" for "1099-R" which will take you to the same place.

Be sure to choose which spouse the 1099-R is for if this is a joint tax return.
Be sure to pick the correct 1099-R type: Standard 1099-R, CSA-1099-R, CSF-1099-R, RRB-1099-R.

[NOTE: When you get to the "Your 1099-R Entries" screen where you can add another 1099-R, use "continue" to keep going as there are additional interview questions after that screen in most cases. You can always return as shown above.]Enter a 1099-R here:

Federal Taxes,
Wages & Income
(I'll choose what I work on - if that screen comes up)
Retirement Plans & Social Security,
IRA, 401(k), Pension Plan Withdrawals (1099-R).

OR  Use the "Tools" menu (if online version left side) and then "Search Topics" for "1099-R" which will take you to the same place.

Be sure to choose which spouse the 1099-R is for if this is a joint tax return.
Be sure to pick the correct 1099-R type: Standard 1099-R, CSA-1099-R, CSF-1099-R, RRB-1099-R.

[NOTE: When you get to the "Your 1099-R Entries" screen where you can add another 1099-R, use "continue" to keep going as there are additional interview questions after that screen in most cases. You can always return as shown above.]

**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.**
Mpitchford
New Member

I took a withdrawal from 401 k using the covid provisions to pay off a loan i had on my 401k to essentially get rid of the loan payment. anything special i should report?

Doing it this way provides no assurance the tax penalty will be split up in 3 years. It actually only specified 2 years as an option to spread out the income but then it reads as if I would pay the entire amount owed this year. How can I make sure it’s spread up over 3 years? And how do I get it spread out 3 years and not 2?

macuser_22
Level 15

I took a withdrawal from 401 k using the covid provisions to pay off a loan i had on my 401k to essentially get rid of the loan payment. anything special i should report?


@Mpitchford  wrote:

Doing it this way provides no assurance the tax penalty will be split up in 3 years. It actually only specified 2 years as an option to spread out the income but then it reads as if I would pay the entire amount owed this year. How can I make sure it’s spread up over 3 years? And how do I get it spread out 3 years and not 2?


1/3 taxable in 2020 and 2/3's in 2021 on 2022.

 

Unless you paid part back on 2020 then 2020 tax can be less or zero.

 

 

**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.**
DaveF1006
Employee Tax Expert

I took a withdrawal from 401 k using the covid provisions to pay off a loan i had on my 401k to essentially get rid of the loan payment. anything special i should report?

No. The program will do this automatically within the program.

  1. Log into turbo tax 
  2. Go to federal>income and expenses
  3. Retirement plans and Social Security>show more 
  4. Ira (401K), pension plan Withdrawals(1099R) Start
  5. After entering your 1099R you will scroll through several screens until you reach a screen that says Tell us if any of these uncommon situations apply
  6. Here you will select the first choice 
  7. I took out this money because of a qualified disaster (includes COVID-19)
  8. Scroll through the next few screens until you reach a screen that says is this a withdrawal due to COVID-19 or a Qualified Disaster Distribution?
  9. You will say yes, this was withdrawn due to COVID 19
  10. Next screen says COVID-19 distribution Here you will indicate that all or some was a COVID 19 withdrawal.
  11. Next will ask about your COVID related stuff.  There is a checkbox that you must answer saying that you were financially impacted by COVID 19. This will waive the early withdrawal penalty.
  12. Then it asks if you repaid the distribution, you can say no unless you did.
  13. Then it asks if you want to pay the tax all the tax this year. leave the check box blank and continue.
  14. This will generate a 8915-E and will spread your taxable amount over a three-year period automatically.

 

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Mpitchford
New Member

I took a withdrawal from 401 k using the covid provisions to pay off a loan i had on my 401k to essentially get rid of the loan payment. anything special i should report?

Thank you this was very informative. However when this part is reached in TurboTax it says it will be spread out 2 years not 3. Is this an error? 

macuser_22
Level 15

I took a withdrawal from 401 k using the covid provisions to pay off a loan i had on my 401k to essentially get rid of the loan payment. anything special i should report?


@Mpitchford  wrote:

Thank you this was very informative. However when this part is reached in TurboTax it says it will be spread out 2 years not 3. Is this an error? 


The 1st year is 2020, then 2021 and 2022.

**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.**
Tequilajane
Level 2

I took a withdrawal from 401 k using the covid provisions to pay off a loan i had on my 401k to essentially get rid of the loan payment. anything special i should report?

It says it is updated but is still trying to charge me 10% after saying I’m approved. Have you had any luck yet??  I had no luck with live help this past weekend.  

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