1099-R for an early distribution for down payment on first home

[aiglinski]

I have1099-R for an early distribution for down payment on first home. It is a simple IRA. I withdrew $7,720.00 and paid $772.00 towards federal and $350 towards state taxes already. From my understanding, because it was a simple IRA used toward purchase of my first home, the 10% early withdrawal penalty should not apply so I should not owe any more taxes on this withdrawal. Is this correct?

[MichaelL1]

The 10% penalty may not apply (see notes below) but there will be ordinary income tax on the amount taken out and you will get credit for amount paid ($772 and $350). 

You will entire the 1099R exactly as you have received it. 

Make sure the tax payments are entered.  TurboTax will initially show the 10% early withdrawal penalty until you get to the exceptions area and enter the amount of money that was used for the purchase of the home.  If it is less than the $7,720, you will have a 10% on the amount not applied to the home purchase. 

After you are finished entering this TurboTax will have determined the correct tax on the withdrawal and given you credit for the amount of taxes withheld. 

To enter or edit the 1099R go to:

1099R

To enter pension and annuity Payments (1099-R)

• Click on Federal Taxes (Personal using Home and Business)
• Click on Wages and Income (Personal Income using Home and Business)
• Click on I'll choose what I work on (if shown)
• Scroll down to Retirement Plans and Social Security
• On IRA, 401(k), Pension Plan Withdrawals (1099-R), click the start or update button
• keep going and you will get to screen on exceptions to the 10% penalty. 

What are the tax consequences when I withdraw amounts from my SIMPLE IRA?

Generally, the same tax results apply to distributions from a SIMPLE IRA as to distributions from a regular IRA. However, a special rule applies to a distribution received from a SIMPLE IRA during the 2-year period beginning on the date on which you first participated in your employer’s SIMPLE IRA plan. Under this special rule, if the additional income tax on early distributions applies to a distribution within this 2-year period, then the rate of additional tax under this special rule is increased from 10 percent to 25 percent. If one of the exceptions to application of the early distribution tax under section 72(t) applies (for example, for amounts paid after age 59 1/2, after death, or as part of a series of substantially equal payments), the exception also applies to distributions within the 2-year period and the 25-percent additional tax does not apply.

Source: https://www.irs.gov/retirement-plans/simple-ira-plan-faqs-distributions

[esmaequarles]

I made a withdrawal from my 401(k), paid Federal/State taxes. I was 68 years old. I do not have to pay an early withdrawal penalty.

[esmaequarles]

I was 68 years of age when I withdrew money from my 401(k). I paid my Federal and State taxes when I made the withdrawal.

[BillM223]

"I paid my Federal and State taxes when I made the withdrawal."

Technically, you did not pay the income taxes on this distribution at that time; instead, what you did is set aside some money to be used eventually as part of your overall tax payments during the year.

The plan administrator can't know how much tax this distribution will cost you at the time of distribution because the administrator doesn't know all your tax information.

Not until you do your tax return after the end of the year will you know how much tax you will owe for the distribution. Then for whatever amount this distribution adds to your tax bill, you have set aside tax money through withholding on the 1099-R to help pay for it. The withholding may be too much or it may have been not enough - you won't know until you are ready to file.