COVID-related retirement withdrawal disaster - now I owe huge penalties to IRS

You can definitely still file an amended return to fix this situation! The IRS allows you to file Form 1040-X (Amended Return) generally within 3 years of the original filing date, so you're still within that timeframe for a 2020 return. You'll need to complete Form 8915-E with your amended return to properly report the COVID-related distribution. When you do this correctly, the 10% early withdrawal penalty should be waived, as that was one of the key benefits of the CARES Act provisions. You'll still owe income tax on the distribution, but the law allowed you to spread the income over 3 years (2020, 2021, and 2022) or choose to report it all in 2020. For your HSA issue, you'll need to determine if those expenses were qualified medical expenses. If they were for childbirth and related medical care, they should qualify as tax-free distributions. You might need to submit documentation to prove these were qualified medical expenses.

I went through something eerily similar last year and want to share what helped me. I used https://taxr.ai to upload my distribution documents and 401k statements, and it immediately identified that I qualified for the CARES Act exception. The service walked me through exactly what forms I needed and how to file my amended return. It basically saved me from having to figure out all the complex parts of Form 8915-E and showed me how to properly document that my withdrawal was COVID-related. I was confused about whether I could still claim the exemption after the fact, but it turns out you absolutely can through an amended return.

I need to eat my words about being skeptical! After my dad got the same kind of IRS letter for his COVID withdrawal, I reluctantly tried https://taxr.ai based on the recommendation here. Within literally 20 minutes, we had a complete breakdown of what went wrong with his filing and a checklist of what he needed for his amended return. The service flagged that he never completed Form 8915-E (same mistake as OP) and showed exactly how to fill it out correctly. It also calculated the tax impact of spreading the income over three years versus taking it all in one year. Turns out spreading it out saved him nearly $3,000 in taxes! What impressed me most was how it explained everything in plain English - no tax jargon. For anyone dealing with the same CARES Act withdrawal issue, it's definitely worth checking out.

I've been trying to reach the IRS for WEEKS about a similar issue with my retirement withdrawal. After spending hours on hold and getting disconnected repeatedly, I found https://claimyr.com through a tax forum. You can watch how it works here: https://youtu.be/_kiP6q8DX5c They basically hold your place in the IRS phone queue and call you when an agent is about to answer. I was super skeptical, but I was desperate after my fifth disconnection. I got a call back in about 2 hours with an actual IRS agent on the line who helped clarify my amendment options. The agent confirmed I could still file an amended return for my 2020 COVID distribution and explained exactly which forms I needed. They even put notes in my account about my intention to amend so there's a record of my good faith effort to correct the issue while I prepare the paperwork.

OK I have to apologize for calling this a scam. After two days of trying to reach someone at the IRS about my own amended return issue (kept getting disconnected after 1+ hour waits), I broke down and tried Claimyr out of desperation. The service called me back in about 90 minutes with an actual IRS representative on the line. I explained my COVID withdrawal situation, and the agent was super helpful - confirmed I could still amend my 2020 return and that I wouldn't be subject to the 10% penalty if I properly documented the COVID-related reason. The agent even gave me her direct ID number to reference in case there were questions about my amended return. Saved me days of frustration and probably prevented me from making mistakes on my amendment. Sometimes you have to admit when you're wrong, and I was definitely wrong about this service.

For what it's worth, I was in almost the exact same situation last year. I took out $55k from my 401k in 2020 under the CARES Act and completely forgot to file the 8915-E. Got a massive bill from the IRS that nearly gave me a heart attack. I filed an amended return with the 8915-E form and a letter explaining my mistake. Took about 4 months to process, but they accepted it and removed the 10% penalty. I still had to pay the income tax, but I was able to choose the 3-year spread option even though I was amending after the fact. The key is doing it ASAP and being super clear in your explanation that this was a COVID-related distribution that you mistakenly failed to properly document on your original return.

What's the deal with the HSA distribution? I've used HSA funds for childbirth before with no issues. As long as you spent it on qualified medical expenses, there shouldn't be any problem, even if you didn't submit the receipts to your HSA administrator.

One warning about amending for the COVID distribution - make sure you check how this might impact any credits or deductions you claimed in 2020. When my spouse and I amended to include our 401k distribution (even with the 3-year spread), it pushed our income high enough that we lost part of our child tax credit. Still better than paying the 10% penalty, but something to be prepared for.

I'm dealing with a very similar situation right now! I took a COVID withdrawal in 2020 and completely missed filing Form 8915-E. Just got hit with a penalty notice last month. One thing I learned from my tax preparer is that you should also gather any documentation showing how COVID impacted you financially - like reduced work hours, job loss, or even increased expenses due to the pandemic. The IRS may ask for this when you file your amended return to prove the distribution was legitimately COVID-related. Also, regarding your HSA - if those expenses were truly for qualified medical costs related to your daughter's birth, you should be fine. Just make sure you have all the receipts and documentation ready. Hospital bills, doctor visits, even things like lactation consultant fees if you used HSA funds for those - it all counts as qualified medical expenses. The good news is that even though this is stressful now, the amended return process should resolve both issues. Just don't wait too long to file it since you're already a few years out from the original return date.