Early distribution from a 401k that the software says avoids the 10% Penalty as it was due to COVID, yet the software is still assessing us a 10% Early Withdrawal Penalty

[kyleodell33]

It says, "You're eligible for the COVID-19 exception" after I answer the questions related to COVID but it still assesses the penalty. Do I need to enter the distribution amount under "Other Reason" when asked "These Situations May Lower Your Tax Bill"?

[DoninGA]

What is the code entered in box 7 of the Form 1099-R?  This may be an issue when using the TurboTax online editions.

[kyleodell33]

The code is L1. It was a loan on the 401k that we did not pay back when my wife stopped working.

[DoninGA]

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@kyleodell33 wrote:

The code is L1. It was a loan on the 401k that we did not pay back when my wife stopped working.

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After entering the Form 1099-R and going through all the questions you will land on a screen that states These Situations May Lower Your Tax Bill, enter the amount of the distribution in the box labeled Other Reason

The 10% early withdrawal penalty will be removed.