This question that TurboTax is asking has nothing to do with early-distribution penalties. TurboTax is asking in case the amount in box 2a of the Form 1090-R is not correct and you have after-tax basis in the plan. If you received periodic payments (in the form of an annuity), have basis in the plan and the taxable amount in box 2a is incorrect or not determined, you must use the Simplified Method to calculate the taxable and nontaxable amounts. If box 2a is correct, which it should be box 2b Taxable amount not determined is not marked, you should not be using the Simplified Method. If you have no after-tax basis in the plan, you should not be using the Simplified Method.
