1099-R

[warewaware]

I entered my 1099-R, including my federal income tax withheld (4), but the system is still stating I owe a 10% penalty. Do I enter my 1099-R box 4 information in payments made in "estimated federal taxes"?

[AnnetteB6]

No, the withholdings shown in box 4 will be taken into account on your return just like withholdings reported on a W-2 would be.

The 10% penalty is for taking an early distribution from a retirement account without having a valid exception to claim.  This penalty is in addition to the distribution itself being included as part of your taxable income.  TurboTax will show you a list of possible exceptions to the early distribution penalty.  If any of these apply to your situation, enter the amount that was used for the exception in the box beside the applicable category to reduce your penalty.

To learn more, see the following TurboTax help article:

How does a retirement plan withdrawal (Form 1099-R) affect my taxes?
 

[Boyan]

Did you plug the code in box 7 into TT correctly? That would be how TT will account for the penalty or no penalty; what was the code anyway?  and yes if the 1099-R is wrong you can manually edit the code in forms mode ctrl-f

[fanfare]

due to bugs, TurboTax is wrongly penalizing RMD .

to avoid wrongful penalty, for each 1099-R, tell TurboTax that the distributed amount is the calculated required amount.
OR

to avoid wrongful penalty, for each 1099-R, tell TurboTax that the calculated required amount is -0-.

@warewaware 

[Boyan]

@fanfare I totally get the mechanics of how to overwrite an incorrectly coded 1099-R and force an exemption at the time of filing but that could likely trigger IRS interest since the incorrectly coded 1099-R is sent to them by the custodian so there'll be an easy to catch divergence between what the custodian says and what the taxpayer says?

Is that a thing and how does one approach the risk associated with such a simple item that IRS will likely catch and inquire about? Thank you

Conversely, if the custodian is plagued by dysfunction (as it is Milliman) they don't even know what the rule of 55 is - I've called many times so I'm certain they will issue defective 1099-R when my time comes and I'll have to deal with the ramifications. 

[fanfare]

The issue on this thead is about 2024 TurboTax bugs against correctly coded 1099-R.

The suggested workaround is in answers to the TurboTax prompts, not in changing any amount or code shown on your 1099-R.

@Boyan 

[VolvoGirl]

This is an old thread but for @warewaware  & @Boyan  about the 10% penalty

You didn't actually pay the tax or the 10% penalty (you pay a 10% early withdrawal penalty if you are under 59 ½). You had taxes withheld like from your paycheck. You still have to enter the whole gross amount (before taxes were withheld) with your other income to figure out the total tax (and it may put you into a higher tax bracket and can reduce any credits) and then the withholding is subtracted from the total tax to figure your refund or tax due. The Gross amount shows up on 1040 line 4a or 5a and the taxable amount on 4b/5b. The withholding will show up on 1040 line 25b.

It has to break out and show the 10% penalty separately on your return (schedule 2 line 8 which goes to 1040 line 23). Then you get credit for all the withholding taken out on 1040 line 25b.

[NCPERSON1]

@Boyan what is the code in Box 7?  

and please confirm this is what you are referring to as "the rule of 55" 

the employee separates from service during or after the year the employee reaches age 55 (age 50 for public safety employees of a state, or political subdivision of a state, in a governmental defined benefit or defined contribution plan) 

If the Administrator uses Code 2, then there is no 10% penalty.   That is what is to be used for the "55 rule" stated above.  If Milliman didn't use Code 2, then best go back and ask them "why".   Overriding anything in TT invalidates the guarantee. 

[Boyan]

@NCPERSON1 Thank you for your reply, yes I'm referring to rule of 55 early distribution from 401k with no penalty (tax is due regardless) and specifically my question was what to do if the Administrator does NOT code the 1099-R correctly with the proper penalty exemption code in box 7 - then what? The reason why they would do that pure incompetence so I'm trying to gather counter measures one can take if the inevitable happens when they issue the defective 1099-R