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posted Jan 27, 2021 12:03:20 PM

The total amount that I’ve withdrawn from 401K for covid was added to my total taxable income. IRS says we can spread this income in 3 years. How does it work?

Turbo tax 401k section says “you’ll need to revisit this area. The IRS instructions were not ready. When are they going to be ready to split 401K covid withdrawal in 3 years to avoid full amount to be added to my taxable income?

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Expert Alumni
Jan 27, 2021 12:12:05 PM

Form 8915 -E is not yet finalized by the IRS.

 

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.