It’s unclear what penalty you’re talking about. If you are under age 59 1/2, you probably owe a 10% penalty for early withdrawal. That is calculated on your tax return, and your withholding will not have been enough to cover it.
If TurboTax is calculating a penalty for underpayment of income tax, that may be because you owe more than $1000 at the end of the year, even with the withholding, or it may be because your income came in a single lump sum. If you are testing your tax situation and you are seeing that you owe more than $1000, you can mitigate any penalties by making an estimated payment before January 15, at www.irs.gov/payments.
you could also be assessed an underpayment penalty because you have a lump sum of income, even though you also had withholding. The basic tax calculations, assume that your income is paid evenly during the year, and that your taxes should also be paid evenly during the year. For example, if you have a $150,000 withdrawal in November, the IRS will still assume that you owed partial estimated tax payments in April, June, and September. This is addressed by completing the penalty form 2210 and selecting the “annualized“ method. This is a way of dividing your income into the 4 quarters of the year and showing that for each quarter, the withholding or payments was appropriate for that quarter’s income.
