How, where and when is the 10 % penalty introduced for an early withdrawal of a retirement account????????

[kburby1]

I had to withdraw (cashout) early (I'm only 54) one of my retirement accounts ($41,027) for house repairs, etc.  I have the Form 1099-R which they took out federal and state taxes ($8205 and $1641).  Where, when and how is the 10% penalty introduced? There was no mention of the penalty on Turbotax

[macuser_22]

Enter a 1099-R here:

Federal Taxes,
Wages & Income
I’ll choose what I work on (if that screen comes up),
Retirement Plans & Social Security,
IRA, 401(k), Pension Plan Withdrawals (1099-R).

OR  Use the "Tools" menu (if online version under My Account) and then "Search Topics" for "1099-R" which will take you to the same place.

Be sure to choose which spouse the 1099-R is for if this is a joint tax return.
Be sure to pick the correct 1099-R type: Standard 1099-R, CSA-1099-R, CSF-1099-R, RRB-1099-R.

[NOTE: When you get to the "Your 1099-R Entries" screen where you can add another 1099-R, use "continue" to keep going as there are additional interview questions after that screen in most cases. You can always return as shown above.]

After all questions have been answered the penalty will be calculated on a 5329 form and reported on line 59 on the 1040 form.

[macuser_22]

Assuming that this was from a 401(k) or Traditional IRA with a code 1 in box 7 or a Roth IRA with code "J".

 If Roth IRA then as long as the distribution was not more than your own previous contributions (not already withdrawn) and entered in the latter part of the followup questions, there will be no penalty since you can always withdraw your own Roth contributions tax and penalty free.

[kburby1]

it has code 2 in box 7. it says "you don't need to pay more taxes or money taken out of this account"  why is there no mention of penalty?

[macuser_22]

A code 2 says that the insurer has determined that you qualify for an exemption (below) to the penalty so their will be no penalty.  If you do not know why you have a code 2 and not a code 1, ask the issuer.

Per 1099-R instructions:
"Use Code 2 only if the participant has not reached age 59½ and *you know* the distribution is the following.

   - A Roth IRA conversion (an IRA converted to a Roth IRA).
    -A distribution made from a qualified retirement plan or IRA because of an IRS levy under section 6331.
   - A governmental section 457(b) plan distribution that is not subject to the
    additional 10% tax. But see Governmental section 457(b) plan distributions, earlier, for information on distributions that may be subject to the 10% additional tax.
    -A distribution from a qualified retirement plan after separation from service in or after the year the participant has reached age 55.
   - A distribution from a governmental defined benefit plan to a public safety employee (as defined in 72(t)(10)(B)) after separation from service, in or after the year the employee has reached age 50.
    -A distribution that is part of a series of substantially equal periodic payments as described in section 72(q), (t), (u), or (v).
    -A distribution that is a permissible withdrawal under an eligible automatic contribution arrangement (EACA).
   - Any other distribution subject to an exception under section 72(q), (t), (u), or (v) that is not required to be reported using Code 1, 3, or 4."

[kburby1]

does the code 2 in box 7 mean I don;t have to pay a penalty?

[macuser_22]

Yes, that is what it means.

[kburby1]

thanks.  I hope that is the case.  I was told I'd have to pay a 10% penalty

[macuser_22]

Told by who?   If the financial institution that issued the 1099-R told you, then the code 2 might be in error.  You should ask them before you file.