I pulled money out of my IRA to pay for dental work for my wife. What are the tax ramifications for that?

[MinhT1]

If you are younger than 59 1/2, you can avoid the 10% early withdrawal penalty for the portion of unreimbursed medical expenses which exceed 7.5% of your AGI.

Please read this TurboTax Help article for more information.

In TurboTax, please follow these steps:

1. After you have entered all your forms 1099-R, on the summary page Review your 1099-R Info, click Continue 
2. Follow the interview until you arrive at the page titled Did you use your IRA to pay for any of these expenses?
3. Enter the amount of your medical expenses in the box next to Medical expenses and click Continue
4. Your early withdrawal penalty will be waived.

[dougforester]

I am using the online version of Turbotax and there is no page entitled Did you use your IRA to pay for any of these expenses. I went through all the pages starting with IRA, 401(k), Pension Plan Withdrawals (1099-R) several times to make sure.  I could not find a way to enter the information. 

[Cynthiad66]

I used online to recreate your situation and this is how it appears.

After the above page and you get to the end where it shows the amount of the distribution, hit Continue and it will go through a series of questions to get to this page below.

Continue to follow the prompts to the end and answer each question.

I hope this helps.

@dougforester

[dougforester]

Cynthiad66: My screen does not look like your screen (I am using TT Deluxe). There are no headings across the top; mine are at the left side. And I still can't find a way to see the question of how the distribution was used.

[BillM223]

I am puzzled on how Online is behaving. You should see a screen early in the 1099-R interview that asks "Did this money come from a SIMPLE IRA you opened in the last two years?" I assume that you have been answering "no", and end up not seeing the screen that Minh and Cynthia are referring to.

Just answer "Yes" to the Simple IRA question. You will have to go quite a way to see what you want, but eventually you will be asked if there were "Any Nondeductible Contributions to Blank's IRA?" I assume that you will want to answer "no", and when you do and Continue, then the next screen is "Let's See If We Can Lower Your Tax Bill".

The screen after this is the one you want: "These Situations May Lower Your Tax Bill".

I do not know why this screen appears only after you say that you opened a SIMPLE IRA in the last two years. These conditions for waiving the early distribution are valid for any IRA, not just SIMPLE IRAs.

You almost certainly have a traditional IRA; a SIMPLE IRA is founded by a small employer so that the employer can contribute to the employee's retirement. Please see this IRA webpage.

Anyway, for purposes of what you need to do, just check that you have a SIMPLE IRA, and continue.

@dougforester 

[BillM223]

We think we have found the issue. Normally, your 1099-R should have had a distribution code of '1' in box 7, indicating that the IRS custodian recognized that you were under 59 1/2 so should be liable for an early distribution penalty. I am sure that both Minh and Cynthia entered this in the tests that they did.

I don't know what you did - take your existing return and add an 1099-R? But if you are already more than 59 1/2, then the admonition about an early distribution penalty doesn't apply to you, so you would not have seen these screens. Or conversely, you are under 59 1/2 but used a code of '7' in box 7 *which is what I did).

In any case, this early distribution penalty applies ONLY if you are 59 1/2 or under...are you?

@dougforester 

[dougforester]

Here is the sequence of screens when I added the IRA. Never was the question asked about how the IRA money was used.

-----------------------------------------------------------------------------

Add Annother 1099-R
Relax - We Got It
Let's import your tax info
TD Ameritrade
Let's import your tax info
Account # ...
Document ID ...
Get my form
I'm not a robot
Connecting to TD Ameritrade
We got your TD Ameritrade forms
Review your 1099-R info
New one needs review
Review
Who does this 1099-R belong to?
x Douglas
Confirm
Who gave you a 1099-R?
Financial institution or other provider (1099-R)
Now, let's review your 1099-R provider's info
Provider info all filled in ...
I had to tab through some boxes that were empty to clear them
Do any of these situations apply to you?
None of these apply
How much of the $xxxx was a RMD?
Only part of this distribution was a RMD:
$xxxx <= filled from my statement
Tell us if you moved the money through a rollover or conversion
I didn't rollover or convert this money
Then back to: Here's your 1099-R info
List of 1099-Rs
Have you ever taken a disaster distribution before 2022?
No
Any Nondeductible Contributions to Douglas' IRA?
No
Tell Us More About This Retirement Plan Distribution
Douglas received all the RMD for 2022
Great! We've got your income info
List of income streams ...

[dougforester]

Not under 59 1/2 - I am 79.

[LindaS5247]

If it is a Traditional IRA it will be taxed as taxable income.  Since you are over 59 1/2 the comments discussed above do not apply, because you are not getting an early withdrawal penalty.

It would be reported to you on a Form 1099-R.  You should have received one if you withdrew the money in 2022.  It would likely have a distribution code of 7 in Box 7.  As stated, since you are over 59 1/2 there will be no penalty.  

If part of your distribution was for a Required Minimum Distribution (RMD) you report that portion.  It looks like you did per your prompts listed above.