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Level 1
posted Feb 28, 2021 4:21:03 AM

New COVID 401k exemption questions confusing

When stepping through the new 401k COVID distribution questions - on the Lets check if you're exempt page there is an extra Yes/No option but no related question. What should I select?

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1 Replies
Expert Alumni
Feb 28, 2021 5:35:01 AM

The last Yes/No is to the question "where you or any person living in your household financially impacted by COVID-19?"

 

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 or having work hours reduced because of COVID-19
  • You’re unable to work due to child care closure or hour reduction because of Covid-19
  • 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.

 

You can choose to have the distribution taxed over 2020, 2021, and 2022 instead of only in 2020. You’ll have three years to pay back the funds you withdrew, without the amount impacting that year’s cap on contributions. If you pay back the amount within that time, you’ll be able to claim a refund on those taxes paid when you file an amended tax return. Please see IRS Coronavirus-related relief for retirement plans and IRAs for more details.