401-K Cares act distribution

[Camp1040]

TP who is under 59 1/2 and not meeting any exception for a code 2 in box 7 received a 1099-R from her employer's 401-K trustee with code 2 in box 7.

At the time of the distribution TP informed the trustee that she was taking  the distribution per the cares act and the trustee  used code 2 in Box 7.

I'm thinking I should be good to go without any need for form 8915-E since their is not a penalty to waive

Would that Assumption be generally accepted or would a corrected 1099-R be MORE correct?

Thanks for any input.

[qbteachmt · Accepted solution]

The 8915-E is for the Election to take the income as taxable in the year distributed or not.

"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."

That doesn't control the 10% early distribution penalty.

Perhaps you meant Form 5329?

[Camp1040]

I did not realize that "little" distinction. TP does not want to elect the 3 yr option, so since we have a code 2; no penalty. I will file without 8915-E.

Thanks for the quick reply.

[qbteachmt]

When you enter the 1099-R, follow it through for everything that applies.

[rbynaker]

@Camp1040 

Absent some instructions to the contrary, I would jump through the hoops and include Form 8915-E.  From a technical standpoint the law spreads the income over three years unless you elect out.  It's possible that simply claiming all of the income in 2020 constitutes an "election" but certainly filing the 8915-E and checking the box in Part II (Line 9) does so.

Rick

[Camp1040]

Yes, probably best to wait and include the 8915-E. Although it does seem like double secret probation, I would not want my client to have to deal with issues down the road that could have been easily avoided.

[qbteachmt]

"it does seem like double secret probation"

If you want to confirm the penalty waiver and take the total as taxable in the year distributed, you have to jump through all those hoops.

[IRonMaN]

623,745

Sorry, the post technically deals with form 8915E so it has to be counted.  Rules are rules.

[qbteachmt]

"Sorry, the post technically deals with form 8915E so it has to be counted. Rules are rules."

There should be extra credit given for that great phrase:

double secret probation

[Camp1040]

I'm staying in the kitchen!🤦‍

[IRonMaN]

Just don't make a mess in there.