As some of you took money out of your retirement plans (401K, IRA, Roth IRA, etc.) which is reported on
IRS Form 1099-R, we wanted to reach out to let you know that
you must inform us if all or any of the money was coronavirus-related in order to avoid the 10% early distribution penalty and/or distribute the taxes over a three year period. Everyone's scenario is different so
please ask us if you have any specific questions or go to
www.irs.gov. For now, please review the following Q&As.
Question: Are you wondering if you have to pay the 10% penalty on the IRA distribution you took out in 2020?
Answer: In IRS terms: are you a qualified individual for purposes of section 2202 of the CARES Act?
You are a qualified individual if:
- You are diagnosed with the virus SARS-CoV-2 or with coronavirus disease 2019 (COVID-19) by a test approved by the Centers for Disease Control and Prevention;
- Your spouse or dependent is diagnosed with SARS-CoV-2 or with COVID-19 by a test approved by the Centers for Disease Control and Prevention;
- You experience adverse financial consequences as a result of being quarantined, being furloughed or laid off, or having work hours reduced due to SARS-CoV-2 or COVID-19;
- You experience adverse financial consequences as a result of being unable to work due to lack of child care due to SARS-CoV-2 or COVID-19; or
- 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
Under
Section 2202 of the CARES Act, the Treasury Department and the IRS may issue guidance that expands the list of factors taken into account to determine whether an individual is a qualified individual as a result of experiencing adverse financial consequences. The Treasury Department and the IRS have received and are reviewing comments from the public requesting that the list of factors be expanded.
Question: What is a coronavirus-related distribution?
Answer: A coronavirus-related distribution is a distribution that is made from an eligible retirement plan to a qualified individual from January 1, 2020, to December 30, 2020, up to an aggregate limit of $100,000 from all plans and IRAs.
When do I have to pay taxes on coronavirus-related distributions?
The distributions generally are included in income ratably over a three-year period, starting with the year in which you receive your distribution. For example, if you receive a $9,000 coronavirus-related distribution in 2020, you would report $3,000 in income on your federal income tax return for each of 2020, 2021, and 2022. However, you have the option of including the entire distribution in your income for the year of the distribution.
Question: What we will need to know from you before we file your taxes:
Answer:
- Was your distribution coronavirus-related?
- Was all or a portion of it coronavirus-related? If a portion, tell us how much.
- Would you like to pay taxes on all of the distribution now or spread it out for 3 years?
