It looks like Turbo Tax is applying the early withdrawal penalty to an inherited 401K distribution. Has anyone noticed that?

ribeye67 · ‎February 28, 2021

20% taxes were withheld with the distribution. Box 7 had 4-death entered on the 1099-R. Yet turbo tax went from a refund of ~$9,000 to owing ~$9,000 from a $147,860 401K inheritance from my Wife's brother. It looks like they must be applying the early withdrawal penalty. Is something wrong with the software?

ColeenD3 · ‎February 28, 2021

If you want to be sure that this is the case, look at Schedule 2 Line 6 Additional tax on IRAs, other qualified retirement plans, and other tax-favored accounts.

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ribeye67 · ‎February 28, 2021

Thank you, that is helpful. I don't see anything on Schedule 2, Line 6 so I was wrong about the 10% being added. I guess that means that I paid 20% tax on the $147,860, and I have to pay ~$18,000 (combined state and federal) additional because 20% wasn't enough. The extra income must have really bumped us up into an expensive tax bracket.

It looks like Turbo Tax is applying the early withdrawal penalty to an inherited 401K distribution. Has anyone noticed that?

Retirement tax questions

Retirement tax questions