Withdrawing Money from my 401K

[bigblack1972]

Due to the pandemic, my company has it setup for employees to take a withdrawal from their 401K with no 10% penalty. The money withdrawn is taxable, we can have the taxes taken out or defer them. If deferred, we have 3 years to pay the taxes. So I'm wondering if anyone with tax knowledge have any insight on how the tax rate will be due to this pandemic.

[dmertz]

Nothing about the CARES Act changes the tax rates.  You have the option to include a Coronavirus-Related Distribution in income either entirely on the tax return for the year of the distribution or irrevocably spread equally over three years.  Because of the progressive nature of the US tax brackets, spreading the income over three years can result a lower total tax liability than the total tax liability over those same three years if the distribution was included the entirely in the income of the first year.  However, there can be certain circumstances where spreading the income over three years could actually increase total tax liability, so each individual would need to make their own assessment of whether or not it is most beneficial to use the 3-year option.  One would do this by preparing simulated tax returns for 2020, 2021 and 2020 based on estimated income and deductions for those years and comparing the combined tax liability.

[AnnetteB6]

In addition to the information provided by dmertz, if you do choose to spread out the tax liability over three years you are taking the chance that the current tax rates will not change.  There is no guarantee that the tax rates will not be very different within the next three years.  No one can predict what may change with respect to the tax brackets.

@bigblack1972