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saterry777
New Member

We are looking at withdrawing some funds from our 401k. We own a business that we had to reduce the hours of due to Covid-19, but I was able to pick up a lot of part time work at another job. Would we

be able to withdraw from our 401k without a penalty?  Would the income from the part time job negate the loss our business had? What proof do we need to show the loss?  What if we recoup some of our f
2 Replies
macuser_22
Level 15

We are looking at withdrawing some funds from our 401k. We own a business that we had to reduce the hours of due to Covid-19, but I was able to pick up a lot of part time work at another job. Would we

See this IRS FAQ:

 

https://www.irs.gov/newsroom/coronavirus-related-relief-for-retirement-plans-and-iras-questions-and-...

**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.**
Opus 17
Level 15

We are looking at withdrawing some funds from our 401k. We own a business that we had to reduce the hours of due to Covid-19, but I was able to pick up a lot of part time work at another job. Would we

"We" don't have a 401(k).  A 401(k) is an individual account belonging to one person.  Generally, if the person is still employed by the original plan sponsor (employer), no withdrawals are permitted unless the employer has a policy allowing hardship withdrawals. Meeting those rules is separate from anything COVID-related.

 

Then, if the person is no longer employed by the 401(k) sponsor, or the sponsor allows hardship withdrawals, the withdrawal can be exempt from the penalty if it is made between March 22 and December 31, 2020, AND the person making the withdrawal can certify one of the COVID-related situations described in the IRS FAQ.  You will certify this on your tax return. You don't send proof to the IRS with your tax return, but keep the proof for at least 3 years after you file in case of audit.

 

Withdrawals from a pre-tax (traditional, not Roth) 401(k) are always subject to regular income tax.  For Covid-related withdrawals, you can spread the taxable income out over 3 years or report it all at once.

 

Whether the PT job offsets your business losses is up to you to determine, you have to certify one of the hardship conditions in the FAQ. 

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
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