After re-installing windows (last epoch lives on a different drive) my game clear flag seems to have been removed and I can no longer create a masochist character (I was able to before the re-install). I killed Lagon again with a level 72 that hadn’t finished the quest yet, and this does not re-enable masochist mode.
Discord chat with Mike W:
https://imgur.com/a/XY6V1jS
My stash is otherwise intact as far as I can tell. I would recommend that to resolve this and prevent it in the future, the “cleared-flag” is re-enabled at login if any character has a quest state appropriate to having cleared the story (or perhaps is above some level threshold, 60+ eg).