In 2020, I took a lump sum distribution from my Roth IRA, which totaled $123k and splits into two parts
1. Covid distribution: $100k
2. Contributions withdrawal: $23k
However, when I enter this information into turbotax it says my Covid distribution was only ~$82k. As a result, I'm getting hit with a 10% early withdrawal penalty on $18k balance.
My Covid distribution is supposed to be $100k, so what am I missing?
If you are not eligible to take a Roth distribution, you can get hit with an Early Distribution Penalty on the balance that you indicated was not 'covid-related'.
Click this link for more detailed info on Early Withdrawal Penalty on Roth Distributions.
Since you don't have to account for what you did with the distribution, you could indicate that the entire amount of the distribution was 'covid-related'.
You may want to delete/re-enter your 1099-R to do this.
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I'm under the impression that withdrawing Roth IRA contributions is subject to no penalty; you are only subject to penalties on earnings.
If I can take 100k via Covid relief and the rest that I withdrew is purely contributions, then I would think that I would be subject to no penalties, right?
TurboTax's calculation is correct. When your Roth IRA distributions are divided between COVID-19-related and non-COVID-19-related amounts, you are not permitted to allocate all of your contribution basis to the non-COVID-19-related portion. Your contribution basis is instead applied proportionately to these two portions. With $23,000 of contribution basis, roughly 82% (roughly $18,860) of the $23,000 non-COVID-19-related portion is taxable and subject to early-distribution penalty.
Had you taken out only $100,000 and claimed it all as COVID-19-related, you would have no penalty. Unfortunately, it's too late to roll over any of the non-COVID-19-related portion to bring the net distribution down to $100,000.