Early Distribution from Retirement Account

Forum|Forum|5 years ago
April 11, 2021
12 replies
103 views

I received an early distribution from a 457 retirement account. I used the money for medical expenses, so Turbo Tax said I didn't owe any taxes on the distribution. However, as soon as I entered the info from my 1099-R form, the amount of federal tax I owed increased by $2700. Why is this?

Best answer by MaryK4

You must still pay the income tax, but the medical expenses exempts you from paying the additional taxes for early withdrawal (10%).

MaryK4Answer

Level 15

You must still pay the income tax, but the medical expenses exempts you from paying the additional taxes for early withdrawal (10%).

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dmertz

Level 15

Your Form 1099-R presumably has code 2 in box 7 to indicate that this distribution from the 457(b) plans is not subject to any early-distribution penalty and that's what TurboTax was referring to as an "additional tax." Except for distributions of amounts attributable to funds rolled into a 457(b) plan from a non-457(b) retirement account, distributions from a 457(b) are not subject to early-distribution penalties no matter what you do with the money.

SLYKTAX

Level 6

Does anyone know why my tax return said I have a $14 Tax on early Distribution?

We are not under 59 1/2. My wife and I are both over 71 and we will be 72 at the end of the year. In 2020 , we both made ROTH contribution but withdrew them in 2021 because of our AGI exceeded the limit. We received our 1099R for the withdrawals. Thanks

dmertz

Level 15

@SLYKTAX This would only happen if the Form 1099-R had code 1 or code J included in box 7 of a Form 1099-R that had a taxable amount of approximately $140. In either case you can claim an Other reason exception to the penalty on the roughly $140.

What appears to be the case here is with a code JP or J8 Form 1099-R for a return of contribution from a Roth IRA. In this case the code J is needed to indicate that it's from a Roth IRA rather than the individual being under age 59½ and those over age 59½ must use the Other reason exception to eliminate the penalty on the taxable earnings that accompanied the returned contribution.

SLYKTAX

Level 6

Thanks dmertz: What happen is I used the codes provided by Schwab for all our 2021 1099-Rs.

We have 5 copies of 1099-R. The 1st is an IRA conversion to ROTH with Code 7 and IRA/SEP BOX checked. The 2nd is for my 2021 ROTH return, tax amount is 0 as I loss money on it and the code is 8J. The 3rd is my 2020 ROTH contribution return with Taxable amount (Box 2a) $ 546.15 as as my 2020 contribution had gain. The 4th & 5th were my wife's. She made $7,000 for 2020 ROTH but $2,000 were done in January 2021 for her 2020's ROTH. Both her contribution had gains. Her (4th 1099-R) is the $5,000's gained of $368.42 (Box 2a), Box 1 is $7,368.42 and the code was PJ. The 5th 1099-R was for her $2,000 gain. Box 1 is $163.78 and Box 2a is 139.21, the code is 8J.

So how can I do the OTHER reason in Turbo tax to eliminate the $14 tax penalty? Thanks again!