"I input all of that info into TurboTax and now it is telling me that I
owe an extra 10% of $978? That means I paid a total of 45% on taxes and
penalties, that seems way too high."
TurboTax is only looking at the distribution amount and your age when it makes that statement. Basically it's telling you something your already know: take a distribution early and you get charged an extra 10%. It would make that same exact statement if you had nothing withheld of if you had 100% of the distribution withheld.
