Roth IRA Early Withdrawal: CARES Act

[tulumkenm94]

I withdrew my ROTH IRA funds as I was affected by Covid / Pandemic as per the criteria of the CARES act.  How is the early withdrawal reported in Turbotax to prevent it from being taxable per the rules of the CARES act which exempts early ROTH IRA withdrawals.   

My specific question is how is the entry done in the Turbotax program so it is not seen as 100% taxable income?

[DanaB27]

Please follow these steps to enter your 1099-R:

1. Login to your TurboTax Account 
2. Click on the "Search" on the top right and type “1099-R”
3. Click on “Jump to 1099-R” and you should see the “Your 1099-R Entries” screen
4. Click "edit" and continue until "Tell us if any of these uncommon situations apply" screen
5. Select "I took out this money because of a qualified disaster (includes COVID-19)" (TurboTax will walk you through questions once this section is ready)

Form 8915-E, that reports the Coronavirus-related relief measures for retirement plan distributions, just got finalized by the IRS. TurboTax will update this section soon and then you can finish your distribution information. Please see here for additional information and to sign-up for updates.

Those who qualify as individuals directly impacted by the pandemic will be able to withdraw up to $100k from their retirement accounts without facing the 10% early withdrawal penalty.

You qualify if:

• You, your spouse, or your dependent are diagnosed with COVID-19
• You experience adverse financial consequences as a result of being quarantined, furloughed, or laid off or having work hours reduced because of COVID-19
• You’re unable to work due to child care closure or hour reduction because of Covid-19
• 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.

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.

[tulumkenm94]

Yes, you can mark the "disaster" box for a 1099-R.  But currently (Feb 13), there are no questions to designate a CARES Act (Covid) reason for the withdrawal.  Is that a feature under development for Turbotax, estimated release date?  

[LinaJ2020]

The 8915-E Form is projected to be e-fileable starting 02/24/2021.  Please click on the following link and sign up for an email notification when it's fixed.  

Form 8915-E

If you are under age 59 1/2, the distribution from the retirement plans and IRAs is considered as an early withdrawal.  Generally, you will pay both regular tax plus an additional 10% penalty of your entire distribution unless you met certain criteria.  Due to the CARES Act, if your retirement distribution is related the Covid-19, you will not be liable for this additional penalty.  You will still pay the normal taxes like your wages and income.  For more information from the IRS, click here: Covid Relief.  If your distribution is not related to the Covid, you will need to pay the penalty.