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Level 2

Form 5329

I made an early distribution from my IRA account. Will turbo tax automatically prompt me that I need to complete form 5329? If yes, at what point of the tax return completion does this prompt happen? If no, why does turbo tax not prompt users to complete this form if early distributions are made?

 

I'm asking this question because I'm using the distribution to pay for education expenses and want to make sure I don't encounter the 10% penalty on early distributions. According to my understanding, this penalty is reflected on form 5329.

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Level 19 rjs
Level 19

Form 5329

You will get a Form 1099-R for the IRA distribution. For an early distribution the 1099-R should have distribution code 1 in box 7. Right after you enter the 1099-R in TurboTax you will get a screen that alerts you that there is an extra tax on the distribution. (Most people call the 10% a "penalty," but the IRS calls it an "additional tax.") That screen tells you that it will check later for exceptions to the additional tax.


After you enter the 1099-R, continue through the questions in sequence. Do not jump around or skip anything. There are a lot of questions. When it asks you what you did with the money, select "I did something else with it." Eventually you will get to a screen that asks you what you used the money for. One of the choices is "higher education." Enter the amount that you used to pay for education. TurboTax will then complete Form 5329 to claim the exception to the additional tax for higher education.