401k Distribution

[valleyhuffs353]

My wife took a full distribtution from her 401k from a previous employer to pay off some credit cards.  She is 57.  Is there any way to reduce the tax bill?

[JeffreyR77]

It depends.  First of all,  you were able to eliminate high interest debt.  Second of all, due to the CARES Act, you were able to withdraw from her 401(k) and avoid a 10% early withdrawal penalty.  You also have the option of spreading the amount of the distribution across 3 years, so you can reduce the tax burden this year.  You also have the option of recontributing some or all. the funds by the end of the third year and amending your returns..

[valleyhuffs353]

I didn't see anything in TurboTax related to the Cares Act.  How do I claim that?

[macuser_22]

When you enter the 1099-R it will ask if it was COVID related.

[valleyhuffs353]

My wife was furloughed from April to July.  We took the distribution in July.  Are there any forms that need to be completed?

[macuser_22]

Did you receive a 1099-R for the distribution?

Enter a 1099-R here:

Federal Taxes,
Wages & Income
(I'll choose what I work on - if that screen comes up)
Retirement Plans & Social Security,
IRA, 401(k), Pension Plan Withdrawals (1099-R).

OR  Use the "Tools" menu (if online version left side) and then "Search Topics" for "1099-R" which will take you to the same place.

Be sure to choose which spouse the 1099-R is for if this is a joint tax return.
Be sure to pick the correct 1099-R type: Standard 1099-R, CSA-1099-R, CSF-1099-R, RRB-1099-R.

[NOTE: When you get to the "Your 1099-R Entries" screen where you can add another 1099-R, use "continue" to keep going as there are additional interview questions after that screen in most cases. You can always return as shown above.]