#7 Question: Do I owe income tax on premature retirement plan withdrawals made in 2020?
Answer: YES
This is a dilemma most people have when filing their taxes. This confusion is around us due to an existing exception made for premature retirement plan withdrawals because of pandemics. Yes, you guess that right, the CARES Act!
According to the CARES Act, those who needed to withdraw up to $100,000 from their retirement plans in 2020 didn’t have to pay the common 10 percent early withdrawal penalty. But it doesn’t mean that the exception will stay with us forever…
The CARES Act also mentions that an individual can pay the tax on any distributions over the course of three years. So, this basically means that you can actually pay in installments when you file in 2021, 2022, and 2023.
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