Ask Terry Questions 401K cashout makes me ineligible for $1400 stimulus?

401K cashout makes me ineligible for $1400 stimulus?

By Terry Savage on March 08, 2021 | Wild Card

I was permanently laid off in March 2020. I ended up cashing out my $30K 401K from my job that summer as I was not finding work. I was able to do this without the early withdrawal penalty under the March 2020 CARES act. However, it made my income over $100K (single filer) for 2020, even though I was unemployed for four months. I’ve already filed my 2020 tax return. Will I be ineligible for the $1400 stimulus?

Terry Says

I have a happy answer for you! You can spread out recognition — and taxes — on this income over three years! Maybe that will put you under the stimulus level.
Here’s what the IRS sent me when I asked:

Attach Form 8915-E and show the entire amount listed on the 1099-R. If no rollover, one-third of that amount is carried to the 2020 return and is taxable.

Though not relevant in this context, a person has the option on the 8915-E to elect out of the spread and show all of it as taxable income in 2020. If this election is not made, one-third is taxable in 2020, with another third taxable in 2021 and the rest in 2022.

If any of it is rolled back to that 401 (k) or a similar plan, the reporting is different, as explained on the form. If the rollover occurs before timely-filing the 2020 return, there is, effectively, no taxable income recognized in 2020. See instructions for details.

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