1099-R Covid Distribution

[G4Captain]

I'm doing my taxes for last year, and I'm stuck on what to do about the distribution I took from my 401K last year.

I have the option to pay all the taxes now on the amount that I withdrew, or spread it out over three years. If I spread it out over three years, how is that money counted for taxes? Is it considered taxable income?

I don't want to end up with a huge tax bill next year or the year after if I make the wrong decision now.

[MinhT1 · Accepted solution]

If you choose to spread the taxation of your COVID distribution over three years, then one third of the amount of the distribution will be added to your taxable income to be taxed in each of the three tax years 2020, 2021 and 2022.

For example, if you withdrew $30,000, then $10,000 will be added to your taxable income in each year 2020, 2021 and 2022.

[macuser_22]

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@G4Captain wrote:

I'm doing my taxes for last year, and I'm stuck on what to do about the distribution I took from my 401K last year.

I have the option to pay all the taxes now on the amount that I withdrew, or spread it out over three years. If I spread it out over three years, how is that money counted for taxes? Is it considered taxable income?

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Yes.  1/3 would be taxable income in each year, 2020, 2021 and 2022) or if you choose the option to pay all the tax in 2020, it will all be taxable in 2020.

[G4Captain]

Thank you both. That's what I wasn't sure of. Knowing it will count as taxable income makes the decision somewhat easier.

[DavG]

No, it doesn't. TurboTax Desktop goes through the process in the Income section and shows only 1/3 being included in taxable income - but when you get to the end of the Federal Tax section, it shows the ENTIRE distribution under "Taxable Income". This is an Error. How do I fix this?

[macuser_22]

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@DavG wrote:

No, it doesn't. TurboTax Desktop goes through the process in the Income section and shows only 1/3 being included in taxable income - but when you get to the end of the Federal Tax section, it shows the ENTIRE distribution under "Taxable Income". This is an Error. How do I fix this?

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The summary screen it gross income (The 1099-R box 1 amount as required) not taxable income.    Taxable income is on the 1040 form line 4b or 5b depending on the type of account.

[DavG]

The summary screen says, "Your Taxable Income".

[macuser_22]

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@DavG wrote:

The summary screen says, "Your Taxable Income".

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What screen are you looking at?   Online version or desktop version?

There are different screens for different summary's.

[DavG]

Nevermind, it is just confusing wording in the Federal section. When I clicked on the Tax Summary icon in the menu, it showed the correct info.

[h-petrovs]

Hi Dav G.

I am having such trouble with this.  I enter the gross distribution and it agrees it is a covid eligible distribution.  The fed tax shows a decrease in taxes due  based allocating 1/3 of the distribution for the year.  Then the screen asks if you would rather take the whole amount into income...if so check the box.  I don't check the box but it still adds back the other 2/3...so showing in the 1040 as the whole distribution is taxable.  Can you help me to figure out how to get this right?  I am having a lot of difficulty trying to understand how to pose a question and ask for help in this community.

[h-petrovs]

Hi again.  After looking at this, I pulled up the 1099R form from the forms tab.  I found that although I clicked on the button that asked "was the total distribution related to covid" in the interview and said yes, when I looked at the form it was blank.  When I clicked it, then the allocation came through on the 1040 as it should.  I just hate to force info and not knowing if it flows through the other forms and state return correctly... 

[tomsyfert]

I took out 30K from 401K for Qualified Covid Relief.  Instead of paying 1/3 or 10K for each of the 3 years..  Can I pay 20K, 5K, and 5K.

That will get me closer to zero payments for this year

[macuser_22]

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@tomsyfert wrote:

I took out 30K from 401K for Qualified Covid Relief.  Instead of paying 1/3 or 10K for each of the 3 years..  Can I pay 20K, 5K, and 5K.

That will get me closer to zero payments for this year

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Yes, If you pay back $10,000  or more for 2020 there will be no 2020 tax.    The remainder will be split between 2021 and 2022.

If you pay back $30,000 for 2020 that will leave $10,000 to be split between 2021 and 2022.

[soewinone]

Hi,
I had Covid related early withdrawal in 2020. Last year I filed with TurboTax and spreaded for three years,
This year I don't know how to do it/
Please show me step by step.

Thank you.

[DoninGA]

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@soewinone wrote:

Hi,
I had Covid related early withdrawal in 2020. Last year I filed with TurboTax and spreaded for three years,
This year I don't know how to do it/
Please show me step by step.

Thank you.

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You must go to the Retirement Income section of the program for a Form 1099-R to be able to enter your 2nd year of the 2020 distribution -

Click on Federal

Click on Wages & Income

Scroll down to Retirement Plans and Social Security

On IRA, 401(k), Pension Plan Withdrawals (1099-R), click on the Start or Revisit button

On the screen Did you get a 1099-R in 2021? Click on NO, if you did not receive a 2021 Form 1099-R in 2022

Answer Yes when asked Have you ever taken a disaster distribution before 2021?

Answer Yes when asked if you took a Qualified 2020 Disaster Distribution

Check the box that this was a Coronavirus-related distribution reported in 2020

In the box 2020 Form 8915-E, line 4, column b - Leave blank or enter a 0

This is not required on a Form 8915-F for a Coronavirus-related distribution

If the 2020 distribution was from an account that was Not an IRA

Enter 1/3 of the amount from the 2020 distribution in both boxes for Line 9

2020 Form 8915E, line 9, if you checked the box on that line, enter 0

2020 Form 8915E Line 9 

If the 2020 distribution was from an IRA account

Enter 1/3 of the amount from the 2020 distribution in both boxes for Line 17

2020 Form 8915E, line 17, if you checked the box on that line, enter 0

2020 Form 8915E Line 17 

Do not enter anything in the other boxes, leave them blank (empty) or enter a 0

The 1/3 of the amount from the 2020 distribution will be entered on the 2021 Form 1040 Line 4b if from an IRA or on Line 5b if from a retirement plan other than an IRA

After completing the Wages & Income section you will land on a screen Did you take a disaster distribution at any time between 2018 and 2020?

Answer NO since you have already completed the entering the 1/3 of the 2020 distribution.

You can view your Form 1040 at any time using the online editions. Click on Tax Tools on the left side of the online program screen. Click on Tools. Click on View Tax Summary. Click on Preview my 1040 on the left side of the screen.

Using the desktop editions click on Forms.  Open the Form 1040

You should not receive the "Needs Review" in the Federal Review section if -

You Leave blank or enter a 0 in the box for 2020 Form 8915-E, line 4, column b