Backstory:
I had a personal Roth IRA for over five years, to which I regularly contributed. In October 2024, I closed the account and took an early distribution, assuming I would only have to pay the early withdrawal penalty. I used the funds to cover medical bills (surgeries) and some debt.
Fast forward to tax season: I received my 1099-R and entered the details into TurboTax. Initially, my tax liability was $1,600, but after inputting the Roth IRA distribution, it jumped to over $12,000.
TurboTax asked whether the account had been open for over five years, to which I answered "yes." I also noted that part of the distribution was used for medical expenses. At one point, the software indicated the distribution wasn’t taxable. However, on the final overview page, it added the distribution amount to my total yearly income and is calculating my taxes based on that.
I had assumed (mistakenly, it seems) that since I contributed after-tax dollars to the Roth IRA, I wouldn’t be taxed again on the principal amount, aside from the expected early withdrawal penalty. Can someone clarify if this outcome seems correct?
