Distribution from IRA - paid the 20% but over 55 and not subject to the penalty but why does my tax due include the penalty?

Forum|Forum|7 years ago
June 5, 2019
2 replies
60 views

When I took the distribution after leaving my job of 16 years, I was told that I would not have to pay any penalties on the distribution other than the original 20% that was deducted. Yet, the exception is not being taken into account when I select it in the dropdown list. My exception is that I am over 55 and should not have to pay that penalty.

What am I missing? The people at Fidelity were quite sure that I was paying enough taxes on the distribution from my IRA

TurboTax Deluxe Online

Best answer by null725

It may well be, depending on how much other income you have that the 20% withheld simply wasn't enough.
The amount withheld from your distribution was only an estimate, just like withholding from your paycheck. The exact amount of tax is not known until you prepare your tax return, because it depends on how much other income you have. The distribution is added to your other income and taxed at whatever your marginal rate is, and the early withdrawal penalty is added, if appropriate. The total amount of added tax may be more or less than what was withheld. You get full credit for the tax that was withheld at the time of withdrawal. You aren't being taxed again, just once accurately.

dmertz

Level 15

It seems unlikely that this is an IRA, but is instead a 401(k) or similar employer plan. There is no 20% mandatory withholding requirement for distributions from an IRA and no age-55 penalty exception for distributions from an IRA. If this was not an IRA, the IRA/SEP/SIMPLE box will not have been marked on the Form 1099-R provided by the payer. The payer also would normally know that your distribution from a 401(k) or similar plan qualified for the age-55 penalty exception and would have used code 2 in box 7 of the Form 1099-R to indicate that there is no penalty.