10% early withdrawal waived

[callmefreud]

My 50 yr old client took money out of his IRA in 2020.  The code was 1 so the software generated the 10% penalty.  Aren't 2020 withdrawals supposed to be penalty free?  How do I undo the penalty?

[IRonMaN]

Did he take it out because of COVID related issues or because he wanted to by an awesome new moped?

[qbteachmt]

@IRonMaN 

That may be the best question of the day.

[IRonMaN]

Just for the day?  I'll have to try harder tomorrow. 😬

[garman22]

@IRonMaN wrote:

Did he take it out because of COVID related issues or because he wanted to by an awesome new moped?

---

I think you meant Mopar.

[IRonMaN]

No, I'm pretty comfortable with the moped.  Pretty much every 50 year old is looking for a new hog to cruise around on.

[garman22]

hahahaha........alrighty then! Hog it is! 🤣

[Just-Lisa-Now-]

Ill take Mopar over Moped anyday!

[Accutax_Rick]

But what's the answer? I've had the same problem. Is there any response?

[Terry53029]

@callmefreud  If it is covid related, scroll down on the 1099r worksheet to the section on Qualified disaster section

[Accutax_Rick]

I doesn't work. i tried it and it didn't make any difference.

[IRonMaN]

Go to form 5329 and use "other" as the exception.

[tax1394]

you need to use 8915E which is not yet available because its not finalized by the IRS and you need to check the coronavirus related disaster on the 1099r input. 

[Just-Lisa-Now-]

8915E is for the 3 year spread, if youre paying tax on the entire amount on the 2020 return, all you need is the 5329

[rbynaker]

8915E is for the 3 year spread, if youre paying tax on the entire amount on the 2020 return, all you need is the 5329

---

That might be right, but I'm not betting the farm on it just yet.  The (draft) instructions for 8915-E under "Who Must File" say:

File 2020 Form 8915-E if you received a qualified 2020 disaster distribution from an eligible retirement plan and the distribution was made in 2020 before December 31.

There's no mention of only being required to file if you're spreading the income.  My concern is that if the IRS gets a 5329 with just a generic code 12 on it and NO 8915-E they're going to want to know why you're not subject to penalty.  My plan is to include the 8915-E for folks even if they're not spreading the income over 3 years.  There is a checkbox on the form to indicate you are NOT spreading (why would they need a checkbox if the form is not required to be filed at all in that circumstance?)

So at this point let's just say I'm reluctant to simply bypass the 8915-E in this situation.

Rick

[rbynaker]

I feel like I'm channeling our old friend the squirrel tonight . . .

Further, if you look at Notice 20-50 bottom of page 11 it says:

A qualified individual receiving a coronavirus-related distribution is entitled to the following favorable tax treatment with respect to the distribution by reporting the distribution on the individual’s federal income tax return for 2020 and on Form 8915-E, Qualified 2020 Disaster Retirement Plan Distributions and Repayments (or if there is no federal income tax return for 2020, by filing just Form 8915-E).1 First, the 10% additional tax under § 72(t) (including the 25% additional tax under § 72(t)(6) for certain distributions from SIMPLE IRAs) does not apply to any coronavirus-related distribution.

To me that says to get the favorable tax treatment of penalty exclusion you need the 8915-E.

Rick

[Just-Lisa-Now-]

Alrighty then, the 8915E it is! You get to run the counter for this question! LOL

[rbynaker]

It's a good thing nobody's filed any returns yet.  Well, except for all of those people who thought it would be a good idea to file them early.

[IRonMaN]

Needing to file form 8915E to make form 5329 work sounds like something Intuit would have created.  Form 5329 instructions have the COVID exception listed under "other" but form 8915E has no ties to 5329 other than both forms mentioning "Corona-virus".  I believe that the person that came up with this logic was the same person that created the "Who's On First" routine.   

[kate2]

I have this same question. I put the amount in form 5329 as other, it made zero difference in the amount of tax owed. Is there an update I am missing or something? 

[kate2]

There is no covid related option available, which makes me wonder if I am missing an update. How do I find out if I need to update the software, is it automatic?

[IRonMaN]

5329 only affects the penalty, not the tax.  The 8915E has the potential to change the tax.

[qbteachmt]

"There is no covid related option available"

Here:

https://proconnect.intuit.com/community/individual/help/proseries-form-1099-r-faq-s/00/4853

[kate2]

Thank you, I just had a chat going with intuit to ask when the software would be updated to include covid related options, as business tax returns are due next month and they had no information. This doesn't make sense to me. I will try the work around you gave (from 2019) but will there be covid specific choices in the software, both for business returns and for personal, before taxes are due to be filed?

[kate2]

One other question, is this the same response for proseries and proconnect?

[qbteachmt]

"as business tax returns are due next month"

So? They never have a 1099-R or the consequences of one.

"is this the same response for proseries and proconnect?"

The part that is IRS Regulation is Yes, the same. The part that is specific Forms, Yes, the same. The part that is Software is, sort of the same. Screens and functions will be different, of course.

Software doesn't change Tax Treatment.

[qbteachmt]

"I will try the work around you gave (from 2019)"

You mean, the 1099-R Topic that shows it was just updated 2 weeks ago?

[taxqueen1]

THE FORM 8915 E IS ONLY USED FOR THE THREE YR TAXATION OF THE DISTRIBUTION

[BobKamman]

The 8915-E instructions also seem to indicate that the three-year treatment is required, unless the taxpayer elects not to use it.  

"Generally, a qualified 2020 disaster
distribution is included in your income in
equal amounts over 3 years. However, if you
elect, you can include the entire distribution
in your income in the year of the distribution."

[vbburrowes]

Were you able find the answer to your question regarding the waiver of the 10% early withdrawal penalty in the proseries?  

[qbteachmt]

@vbburrowes 

Here is your Help article:

https://proconnect.intuit.com/community/individual/help/proseries-form-1099-r-faq-s/00/4853

It's all in the 1099-R worksheet, including the indication that this is a disaster distribution.

[vmtowers]

If withdrawal was Corona Virus related,

select Box showing that it is Corona Virus Related in Form 1099R worksheet.