If withdraw from 401K and do the request on 2020, but funds are received on 2021, is it a taxable income on 2020 or 2021?

[VolvoGirl]

Depends when the 401K sends it.   Did you get a 1099R last January for it?   Maybe you will get the 1099R next month January for 2021.

[metcalfe-lilliew]

I haven't filed it yet because I do not want to jump to another tax bracket. So no, I haven't received a 1099R. Basically we lost a source of income, so if the taxable income from the 401K withdrawal applies to 2021, I would jump tax bracket, which I want to avoid.

But, If I submit the withdrawal now and I get the funds in 2022, would that be a taxable income for 2022, even though I submitted for the withdrawal of funds in 2021? TIA!

[Critter-3]

Again it depends on when the actual distribution happens not when the paperwork was started so ask the 401K plan administrator for an exact answer.  Also you know you can take part in 2021 and part in 2022 if the plan allows.  Or roll the entire amount to an IRA then take well timed distributions as needed. 

[metcalfe-lilliew]

Thank you. This is super helpful.

[macuser_22]

The date that the financial institution made the funds available to you, not necessary the date you receive them.

Ask the financial institution.

[macuser_22]

In addition:   Many (most) financial institutions have rules that they have 2-3 business days to post a transaction.   So if the distribution request was submitted on Dec, 29 2020 or later it most likely would post Jan 4, 2021 making it  a 2021 distribution.   The fact that you have still not received a 2020 1099-R would seem to support that.

[Opus 17]

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@metcalfe-lilliew wrote:

I haven't filed it yet because I do not want to jump to another tax bracket. So no, I haven't received a 1099R. Basically we lost a source of income, so if the taxable income from the 401K withdrawal applies to 2021, I would jump tax bracket, which I want to avoid.

But, If I submit the withdrawal now and I get the funds in 2022, would that be a taxable income for 2022, even though I submitted for the withdrawal of funds in 2021? TIA!

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The answer is, don't play games.

In general, income is reported and taxed when you actually receive the money, not when you request it.  If you request a withdrawal on 12/30/21, and the custodian processes it on 1/3/22, it will be 2022 income and the custodian will issue a 2022 1099-R as such.

You could get into a situation where you and the custodian disagree.  For example, if the custodian processes the ACH transfer on 12/30/21, but your bank does not acknowledge receipt of the funds until 1/3/22 because of the holiday weekend, you could be in a situation where the custodian released the funds in 2021 and issues a 1099-R for 2021, but you could rely on the doctrine of constructive receipt to argue the funds were not actually available to you until 2022.  If you then tried to report the income in 2022 and not 2021, you will have to fight the IRS over the issue.  

So don't play games.  If you want to make a withdrawal in 2021, give the custodian and banks plenty of extra time to process it so all the transactions are settled in 2021.  If you want to make a withdrawal in 2022, wait until 2022 to initiate it.