1099R State Pension Choices - Roll Over or Do Something Else Problems??

[Bsmith1126]

This is the first year entering retirement info.  I have the Deluxe edition and am entering using a disc, not online.  I get two options for what I did with the money 1) roll it into a different account which I did not do, or 2) Do something else.  My "Do something else" option has (cashed it out, etc) after it.  By clicking "something else" my taxes owed jumps almost 10K from where it was before I click that option.  Is this right?  Taxes have already been taken out by the administrator, so why the massive jump?  Am I doing something wrong?  This is really frustrating, because I feel like this is a common issue with retirements.  I get monthly checks. I don't get why my "Do something else" option is also the cash out option.  Help!  Thanks!

[BillM223]

This may be perfectly correct.

The administrator withheld tax from your distribution, but the administrator has no idea how much tax you are going to owe, so they tend to withhold standard amounts like 10% or 20% unless you tell them differently.

So the amount of tax withheld may be far less than your income from the pension calls for.

Also, if you are on Social Security, then the percentage of Social Security that is subject to taxation is dependent on how much other income you have. It is quite common for retirees to be surprised by how much their tax goes up when they add a 1099-R, because not only do they owe tax on the 1099-R distribution amount, but also on a higher percentage of their Social Security.

The "do something else" is a bit counter-intuitive but it lets TurboTax peel off the actions that don't get taxed one by one.