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10% additional penalty on IRA withdrawal

Level 1

How to waive the additional 10% due on IRA withdrawal because of Covid.

I have used Form 5329 as other, is this correct?

 

 

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8 Replies 8
Level 7

Box should be check on 1099R under Qualified Disaster Distribution Smart Worksheet

but I do not believe it is ready yet

Level 1

Thanks!

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Level 15
Level 15
If you just want to waive the penalty, you can do it that way. If you want to spread the taxability of the distribution out over 3 years, you need to fill in the disaster section of the 1099R worksheet and wait for the 8915E to be ready.

♪♫•*¨*•.¸¸♥Lisa♥¸¸.•*¨*•♫♪
Level 11
Level 11

Lisa, would you use 5329 without waiting for 8915-e to be ready? I keep getting conflicting info......I would rather bypass 8915 if I could and use only for 3 year spread.

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Level 15

"I would rather bypass 8915 if I could and use only for 3 year spread."

I think we discovered that the 8915-E has an election you need to consider, so it's not optional:

"Who Must File
File 2020 Form 8915-E if any of the following applies.
• You received a coronavirus-related distribution.
• You received a qualified 2020 disaster distribution other than a coronavirus-related distribution.
• You received a qualified distribution in 2020 for the purchase or construction of a main home in qualified 2020 disaster areas that you repaid, in whole or in part, no earlier than the first day of the disaster and no later than June 25, 2021."

"How Is a Qualified 2020 Disaster Distribution Taxed?
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."

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Level 11
Level 11

So, it is NOT required if you are only looking to waive the 10% penalty? I thought there was a discussion about using the 8915-E to report and to elect the 10% waiver?

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Level 11
Level 11

or is the 8915-E used in conjunction with the 5329 to exclude the 10% penalty?

 

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Level 15

"it is NOT required if you are only looking to waive the 10% penalty?"

I understand it to be, it is the form used to spread the taxable amount over 3 years, just like the other 8915-XX forms. You also need to use to show you don't want to spread it over 3 years = the election is on this form. So, if you took the distribution for "disaster" purposes, you use this form.

"and to elect the 10% waiver?"

The 5329 is to show your distribution (or a partial rollover of it) qualifies for the penalty exclusion (here is selective text from the instructions):

 

Who Must File

You must file Form 5329 if any of the following apply.

  • You received a distribution subject to the tax on early distributions from a qualified retirement plan (other than a Roth IRA) and you meet an exception to the tax on early distributions from the list shown later, but box 7 of your Form 1099-R doesn’t indicate an exception or the exception doesn’t apply to the entire distribution.

Tip: If you rolled over part or all of a distribution from a qualified retirement plan, the part rolled over isn’t subject to the 10% additional tax on early distributions.

"the list shown later" has this code:

12 Other (see Other next). Also, enter this code if more than one exception applies.

 

Other.

The following exceptions also apply

 

  • Distributions that are qualified disaster distributions.

  • Coronavirus-related distributions.

 

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