gloriah5200
Expert Alumni

Retirement tax questions

Unfortunately the question is asking you if you qualify for the exception to the 10% additional tax penalty on the early withdrawal of your pension plan.  If so, then you only enter the amount that qualifies.


The question is actually asking you if you qualify for one of the exceptions of the 10% additional tax penalty covered in the following:

 

exceptions to 10% additional tax penalty on 401K distribution

 

If you did not purchase your "First Home" in 2020, then you cannot use the exclusion of early withdrawal penalties for the purchase of a First Home in 2020.

 

There are only certain exceptions that are allowed to be used to except you from the 10% additional tax for early withdrawal of retirement funds.  They are listed in the following:

 

If you took a distribution from your 401(k) or another qualified retirement plan (excluding IRAs) before you turned 59 1/2, you'll pay a 10% early withdrawal penalty, with a few exceptions:

  • Death, or total and permanent disability
  • Qualified Domestic Relations Order
  • Series of substantially equal periodic payments based on life expectancy
  • Dividend pass through from an ESOP
  • IRS levy
  • Unreimbursed medical expenses that are more than a certain amount of your adjusted gross income
  • Certain distributions to qualified military reservists called to active duty
  • Separation from Service if age requirement is met
  • COVID-19 coronavirus-related distributions of up to $100,000 from January 1 to December 30, 2020

Once you enter the distribution information from your 1099-R form, we'll help you check for any exceptions that could reduce the tax.

 

There is an exception to the early withdrawal penalty this year if you qualify for hardship withdrawals due to covid.  Please refer to the following to see if you qualify.

 

Hardship withdrawal from 401k due to Covid

 

The fact that some withholding was taken out of your retirement distribution doesn't mean you can't have more tax on it.  Generally they only withhold 10-20%, which may only be enough to pay the 10% additional tax if it is due. 

 

However, the taxes withheld on the 1099R get reported on your 1040 with your other taxes withheld from all sources.  Then, once the amount of tax liability is calculated it offsets against all your withholding from all sources to see how much you owe or if you have a refund coming back.

 

Unfortunately, it is not asking you how much you don't want to have subject to the additional 10% early withdrawal penalty, unless it is a "qualified" reason from the list.