topic 401(K) Withdrawal in Get your taxes done using TurboTax

401(K) Withdrawal

1QuickQuestion — Thu, 24 Sep 2020 01:52:55 GMT

After 21 years of working for the same company, I quit in late Feb. of this yr. (2020). And then COVID hit. Due to COVID wrecking the economy, I have been unable to find work for approx. 8 months. I am 40-years-old and unable to receive Unemployment Compensation Benefits. My question is this - Am I able to withdrawal money from my 401(K) account WITHOUT incurring a 10% penalty? I have read mixed answers. Many thanks!

Re: 401(K) Withdrawal

DoninGA — Thu, 24 Sep 2020 13:15:08 GMT

Yes, you can withdraw from a 401(k) account without penalty if you have been affected by the Coronavirus.

Go to this IRS website for Coronavirus-related relief Q&A's - https://www.irs.gov/newsroom/coronavirus-related-relief-for-retirement-plans-and-iras-questions-and-answers

Re: 401(K) Withdrawal

1QuickQuestion — Thu, 24 Sep 2020 17:33:18 GMT

I think you are wrong about that. I need an expert to chime in here, please. I thought I could only withdrawal money w/o penalty, if I was laid-off or furloughed. Neither of those apply to me.

Re: 401(K) Withdrawal

DoninGA — Thu, 24 Sep 2020 18:21:17 GMT

@1QuickQuestion wrote:

I think you are wrong about that. I need an expert to chime in here, please. I thought I could only withdrawal money w/o penalty, if I was laid-off or furloughed. Neither of those apply to me.

From the IRS website - https://www.irs.gov/newsroom/coronavirus-related-relief-for-retirement-plans-and-iras-questions-and-answers

You are a qualified individual if any of these situations apply to you:

You are diagnosed with the virus SARS-CoV-2 or with coronavirus disease 2019 (COVID-19) by a test approved by the Centers for Disease Control and Prevention;

Your spouse or dependent is diagnosed with SARS-CoV-2 or with COVID-19 by a test approved by the Centers for Disease Control and Prevention;

You experience adverse financial consequences as a result of being quarantined, being furloughed or laid off, or having work hours reduced due to SARS-CoV-2 or COVID-19;

You experience adverse financial consequences as a result of being unable to work due to lack of child care due to SARS-CoV-2 or COVID-19; or

You experience adverse financial consequences as a result of closing or reducing hours of a business that you own or operate due to SARS-CoV-2 or COVID-19.

If none of those situations apply in your circumstances then you are not a qualified individual and the CARES act does not apply to you.

An early withdrawal from a 401(k) will incur a 10% penalty on your 2020 federal tax return.

Also see this IRS Notice 2020-50 - Guidance for Coronavirus-Related Distributions and Loans from
Retirement Plans Under the CARES Act - https://www.irs.gov/pub/irs-drop/n-20-50.pdf

Re: 401(K) Withdrawal

no money — Sun, 17 Jan 2021 02:50:55 GMT

The fiduciary of my 401K told me that because of COVID and the CARES Act, the penalty could be delayed for up to 3 years. I work in a hospital, so if I leave it would be voluntary because we are open and very busy.

Re: 401(K) Withdrawal

AmyC — Tue, 19 Jan 2021 01:10:37 GMT

You must have read the reply by @DoninGA and realize that you would not be eligible unless you or a family member had COVID as the rest of the possibilities do not apply to you.

From How are my taxes affected by COVID?:

If you needed to take money out of your retirement plan, keep in mind that the 10% early withdrawal penalty may be waived on up to $100,000 of retirement funds withdrawn if you are a qualified individual impacted by coronavirus.

Additionally, income attributable to such distributions would be subject to tax over three years, and you may recontribute the funds to an eligible retirement plan within three years without regard to that year’s cap on contributions.

@no money