A code 1 indicates a early distribution (under age 59 1/2) from a retirement account other then a Designated Roth account. If the IRA/SEP/SIMPLE box is checked then is is an IRA, otherwise if could be a 401(k) or other type of retirement account. Usually the box 1 or box 2a (if there is a box 2a) is the taxable amount.
A code 1B indicates a early distribution (under age 59 1/2) from a Designated Roth account. Usually the box 2a is the taxble amount.
Enter the 1099-R's and answer the follow-up questions to determine the actual taxable amounts.
I have two 1099-R's with different codes and account numbers but from same company. I can only assume one is an early withdrawal from a standard 401k account and one is an early withdrawal for a ROTH (post tax) account. the taxable amount is much lower in the ROTH account withdrawal. I hope I am answering the questions correctly. Entering each 1099-R is straight forward. I expected to see a 10% penalty but it seems to be more like 15%. Strange.
10% penalty is what you should expect with a early withdrawal under 59 1/2.
Here is some additional information that may be of value.
It was a little easier to withdraw money from your retirement account if you were out of work or needed cash in 2020. Normally, if you withdraw money from your IRA, 401(k) or other employer-sponsored retirement account before the age of 59½, you must pay an early withdrawal penalty.
The CARES Act temporarily waived the 10% early withdrawal penalty on up to $100,000 of withdrawals. To qualify, you had to have been diagnosed with COVID-19 or experienced financial troubles due to the pandemic, such as job loss, quarantine, furlough, reduction in hours, the closing of your business or lack of childcare.
Although the CARES Act waived the 10% penalty, the withdrawals are still taxable as ordinary income. You can spread the taxable income over a three-year period or include the full distribution in your taxable income for 2020. You can also put the money back into your retirement plan within three years and undo the tax consequences by filing an amended tax return.
If you took a retirement account withdrawal in 2020, look for Form 1099-R from your financial institution around the end of January 2021. You’ll need to report the amounts shown on 1099-R when you prepare your 2020 tax return.
So when I have 2 1099-R's, one with 1 and the other with 1B as the distribution codes, why am I not allowed to spread the taxable amounts in both over 3 years, due to covid impact? When I was working on my taxes and entering the 1099-R's, one prompted me about covid impact, but the other did not. Is it because the one that didn't was a Roth 401k? And therefore the taxable amount was fully taxable for this year and I can't spread it out over 3 years like the traditional 401k? That doesn't make sense to me.
If you use TurboTax Online then your code 1B will not trigger the COVID distribution question. Please follow these steps from user dmertz to enter your 1099-R:
- Login to your TurboTax Account
- Click on the Search box on the top and type “1099-R”
- Click on “Jump to 1099-R” and enter all 1099-R information, enter code "1" but do not enter code "B" in box 7
- Continue until "Tell us if any of these uncommon situations apply" screen
- Select "I took out this money because of a qualified disaster (includes COVID-19)"
- Answer all questions in regards to the COVID distribution to trigger that you qualify for the Qualified Disaster Retirement treatment.
- On the “Review your 1099-R info” screen click "edit" and add code "B" to the 1099-R Form entry.
- When you continue the COVID questions are still accessible
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.
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