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IRA Distribution

Forum|Forum|4 years ago
March 18, 2022
46 replies
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I am preparing a 2020 joint return and the spouse received a Form 1099-R with a 1 in the Distribution Code box. Further down on the entry form is a section entitled Qualified Disaster Distribution Smart Worksheet with several boxes to check if applicable. My client does not have any of the typical casualty losses, but I.m wondering if she can check the Coronavirus box. What are the qualification to check this box?

I understand that if she qualifies she can include Form 8915-E and avoid the 10% early withdrawal penalty. She is not interested in spreading the distribution over three (3) years..

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Best answer by dkh

The Worksheet that was provided for Form 8915-F states the following:

Coronavirus-related distributions cannot be made in 2021.

I understand that to mean that a similar IRA distribution in 2021 does not provide the benefit that it did in 2020, namely the elimination of the 10% early withdrawal penalty.

Correct

qbteachmt

Level 15

"if she can check the Coronavirus box. What are the qualification to check this box?"

Q3 and Q4:

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

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W

wethepeopleAuthor

Level 5

Thanks for your reply to my question.

What did you mean by writing Q3 and Q4?

qbteachmt

Level 15

"What did you mean by writing Q3 and Q4?"

Click the link I provided. Read Question 3 and Question 4; they apply directly to what you asked.

Don't yell at us; we're volunteers

R

rcooley25

Level 7

Since it is a 2020 tax return she can check off the box for corona virus and spread out over 3 years if certain circumstances exist. First did the distribution have anything to do with the pandimic. If this was case where she was drawing it out ayway then the answer is no. Many individuals in the trades had the opportunity to take large amount of money out of their 401 k without any early withdrawl penalty and spread it out over 3 years. Does your client fall into this catergory. If not there is no way legally they can claim corona virus and will have to pay taxes on the whole amount and since it is code 1 they have a 10percent withdrawl penalty. There are some other concerns regarding 2021 but get thru 2020 first.

W

wethepeopleAuthor

Level 5

Thanks for reply to my question.

As I understand it, if the spouse does not want to spread the distribution out over the three year period, the main, if not, the only effect on the tax return is the elimination of the 10% early withdrawal penalty.

Is this correct?

dkh

Level 15

Correct

W

wethepeopleAuthor

Level 5

I reviewed the five (5) requirements that you sent me that my client must satisfy for purposes of section 2202 of the Cares Act and the only one that is satisfied is the last one which reads '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-2or COVID--19.'

The taxpayer believes he meets this requirement. He is self-employed and did receive unemployment compensation which he reported and received the special deduction on that. His self-employment income decreased significantly in 2020.

Remember the spouse is the recipient of the IRA Distribution with the Code 1 box checked since she is under age 591/2. She did not meet any of the qualifications.

Can they check the Coronavirus box on the Form 1099-R and get the 10% early withdrawal penalty eliminated?

dkh

Level 15

If I was preparing their return, I would take the Coronavirus distribution exemption.

W

wethepeopleAuthor

Level 5

Now that the release regarding Form 8915-F has been made, i understand from reviewing the Qualified 2020 Disaster Retirement Plan Distributions and Repayments Worksheet that the benefits afforded to qualified individuals who received IRA Distributions such as the elimination of the 10% early withdrawal penalty do not apply to similar distributions in 2021.

Is this correct?

qbteachmt

Level 15

"the benefits afforded to qualified individuals who received IRA Distributions such as the elimination of the 10% early withdrawal penalty do not apply to similar distributions in 2021.

Is this correct?"

Yes and no.

The provision for special treatment for Disaster distributions was not new for covid. It's the reason the Form 8915- family is up to F, now. And the differing provisions would be tax-year dependent, as well as disaster-dependent.

You cannot use a broad brush stroke for this topic. For example, "covid" distributions ended on Dec 30, 2020. There are no "similar" distributions from Dec 31, 2020 and beyond.

You have to look up the rules that apply for the specific scenario. Right now, there are a surprising amount of topics where someone took their distribution from a 401(k) in 2021, and they seem to think the 10% doesn't apply, when really, all that happened is they submitted to their plan administrator for an allowable distribution, which does not also make it exempt from early withdrawal penalty.

Don't yell at us; we're volunteers

W

wethepeopleAuthor

Level 5

The Worksheet that was provided for Form 8915-F states the following:

Coronavirus-related distributions cannot be made in 2021.

I understand that to mean that a similar IRA distribution in 2021 does not provide the benefit that it did in 2020, namely the elimination of the 10% early withdrawal penalty.

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