07 Nov I took a COVID withdrawal. When will the money be taxed?

Q. If I started the process of removing money from my retirement plan due to COVID in 2020 but the company did not distribute the money until 2021, what happens? When it is taxed and did I miss any deadlines?

— Unsure

A. It seems you took advantage of a provision that allowed people to take funds from their retirement accounts.

The CARES Act allowed people to take up to $100,000 from these accounts, even if they were under age 59 ½, and avoid the regular 10% early withdrawal penalty.

The withdrawals were still taxed, though, but you had the option of spreading the taxation of the money over three years.

You are taxed based on the date the funds are distributed, said Michael Karu, a certified public accountant with Levine, Jacobs & Co. in Livingston.

“You should have received Form 1099-R from the company retirement plan acknowledging the amount withdrawn,” he said. “If you had any federal or state taxes withheld, those would also be shown on the same form.”

If you received the funds in 2021, you should have reported it on your 2021 tax returns, Karu said.

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This story was originally published on Nov. 7, 2022.

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