topic Covid related 401k distribution in Retirement tax questions

Covid related 401k distribution

Stevew64 — Thu, 01 Apr 2021 14:24:55 GMT

I lost my job in may 2020 due to covid. I had a 401k loan that at the end of the year I received a 1099-r with a code L (loan treated as deemed distribution). When I input this in Turbo Tax and answered to covid affected questions indicating this was covid related it does not get added to form 8915 e nor spread over the 3 year period which the cares act provides for. If I change the code to 2 it does. How do I approach resolving this? I don't believe the issuer will make a change.

Re: Covid related 401k distribution

MinhT1 — Thu, 01 Apr 2021 16:12:54 GMT

Your loan offset which is the result of your job loss due to to Covid-19 is considered by the IRS as a Covid-related distribution.

Please read page 6 of this IRS document.

As such, the loan offset can benefit from the tax relief provided by section 2202 of the Cares such as the exemption of the early distribution penalty or the spread of taxation over 3 years.

Please read this IRS document for more information.

In TurboTax, you can indicate in the interview for form 1099-R that I took out this money because of a qualified disaster (includes COVID-19).

Edited 04/01/2021 | 9:12 AM PST

Re: Covid related 401k distribution

Stevew64 — Thu, 01 Apr 2021 15:18:44 GMT

If the default was caused through a layoff related to covid? It is a 401k distribution.

Re: Covid related 401k distribution

MinhT1 — Thu, 01 Apr 2021 16:14:05 GMT

Please see my edited answer. Thank you.