I received my annual dividend distribution from my 401K plan (ESOP) and was reported in my 1099-R as taxable income with a U code in box 7 (as expected). Since I'm no longer with the company since 2020, these payments were supposed to be treated as regular income with no additional tax penalties, even when I was less than 59 1/2 years old (I'm 60 now).
However, TurboTax is asking me questions, related to the General Rule, to identify the total contributions to my plan and the expected return on contract that should only be related to regular distributions from my pension plan (annuity or not) and for these once a year ESOP related dividends. What am I supposed to do? Ignore it? If I put some numbers there (guestimates since I'm not officially retired yet and nobody can answer these questions at this time) it affects my state taxes (NJ) but not my Federal Taxes. I assume it affects whether the whole amount is taxable in NJ or not, based on those numbers. Should I just put the whole amount as taxable and move on?
Yes, since your 1099-R with Code U actually represents a Dividend (not a retirement distribution), you can assume it's taxable in New Jersey, and not excluded from income (as some retirement income may be).
Here's more info on 1099-R, Code U.
Odd that TurboTax asks any questions regarding a code-U Form 1099-R. When TurboTax asks if you received "regular payments" from this retirement account, answer No. This question is actually asking if you received amounts in the form of an annuity in payout status.