I don't know why you withdrew them but if you did so because of the Corona virus and withdrew less than $100,000 there are some benefits available to you. There is no penalty but hopefully your bank told you that you do have to pay Federal income tax on your withdrawal, which is why I assume why you are getting this message. Since you took the funds and didn't roll them into another account the entire amount on Box 1 is taxable to you. Box 7 tells you and the IRS what the withdrawal is for. I assume it has a "1" in it. You could have rolled it over into another retirement plan and avoided the tax but it is too late for that.
You can elect to pay tax on this withdrawal over 3 years and have the ability to put the money back in the retirement account and get all of your tax money back. Basically treat the whole thing as though it never happened. What you would have is an interest free three year loan. Not much of a benefit in today's low interest environment.
If you want to continue to have these funds available for your retirement I suggest you elect to pay the tax over 3 years and pay them back in their entirety as soon as you can and apply to get the 2020 tax back. If you need to spend the funds and won't return them to your retirement account I suggest you elect to pay the tax over 3 years and put aside enough to do so.
I don't know how to get Turbo Tax to defer 2/3 of the tax but I assume you can call their help line - or perhaps someone else will reply to this with the method. Just remember the funds must be available to pay your taxes over the next 2 years so don't spent all of your withdrawal.
