Under 59-1/2 IRA Withdrawal

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  • #28418
    haroldml
    Participant

    My daughter, who is under 59-1/2 made an IRA withdrawal because of the COVID pandemic. Her rep at the IRA custodian told her that it won’t be taxable. TTax Deluxe eliminates the 10% penalty but not the tax on the withdrawal amount. I’ve found where it states that it can be repaid over 3 years or the tax paid over 3 years but can’t find anywhere where it states that the penalty on the withdrawal amount is waived.

    Can you please help with this situation.

    Thanks,
    HML

    #28419
    haroldml
    Participant

    I don’t understand why my posted message is struck through with lines. I didn’t do it.

    • This reply was modified 4 months, 2 weeks ago by haroldml.
    #28420
    haroldml
    Participant

    I’ll try again because my original post was deleted. My daughter is 59-1/2 & made a withdrawal from her IRA because of the COVID. The rep at her IRA custodian told her that it isn’t taxable. TTax eliminates the 10% penalty but not the tax on the withdrawal amount. What is the correct tax treatment on this withdrawal?

    Thanks,

    HML

    #28555
    ruth
    Participant

    The distribution is taxable but is not subject to the 10% additional tax on early distributions. She reports the income in equal amounts in 2020, 2021, and 2022 unless she chooses to report it all in 2020. Form 8915-E is used to report coronavirus distributions. Here’s some material from IRS Pub. 590-B.

    Taxation of Qualified Coronavirus-Related Distributions

    Qualified coronavirus-related distributions are included in income in equal amounts over 3 years. However, if you elect, you can include the entire distribution in your income in the year it was received.

    Qualified coronavirus-related distributions aren’t subject to the 10% additional tax (or the additional 25% tax for certain distributions from SIMPLE IRAs) on early distributions from qualified retirement plans (including IRAs). Also, if you are receiving substantially equal periodic payments from a qualified retirement plan, the receipt of a qualified coronavirus-related distribution from that plan won’t be treated as a change in those substantially equal payments merely because of the qualified coronavirus-related distribution. However, any distributions you received in excess of the $100,000 qualified coronavirus-related distribution limit may be subject to the additional tax on early distributions.

    Note. If a qualified taxpayer dies before the full taxable amount of the coronavirus-related distribution has been included in gross income (or repaid), the remainder must be included in income for the tax year of the taxpayer’s death.

    #28940
    haroldml
    Participant

    Ruth,

    Thanks so much for your clear explanation. I thought that she was misinformed by her IRA custodian’s representative. He should not be giving tax advice.

    Much appreciated,

    Harold

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