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danhilde
Level 3

I took a 401k distribution but was > 55 and withdrew same year as terminated. I was charged penalty but should not have been.

My understanding is that if I was at least 55 in 2016 and withdrew the 401k distribution in the same year, that I would not incur the 10% penalty but it seems to have been charged (TurboTax).  Do I need to do something in TurboTax to undo this penalty?
1 Best answer

Accepted Solutions
ChristinaS
New Member

I took a 401k distribution but was > 55 and withdrew same year as terminated. I was charged penalty but should not have been.

You need to select your penalty exception inside of Turbo Tax, after entering the 1099-R. The penalty is addressed a few screens after the 1099-R summary, so you may not have gotten there yet.

You can also get to the penalty exception here:

  • Federal Taxes
  • Other Tax Situations
  • Additional Tax Payments
  • Extra Tax on Early Retirement Withdrawals.
  • Choose "Qualified Retirement Plan"
  • Separation from Service the Year After age 55.

Qualified retirement plan distributions (does not apply to IRAs) you receive after separation from service when the separation from service occurs in or after the year you reach age 55 (age 50 for qualified public safety employees).

https://www.irs.gov/pub/irs-pdf/i5329.pdf

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9 Replies
ChristinaS
New Member

I took a 401k distribution but was > 55 and withdrew same year as terminated. I was charged penalty but should not have been.

You need to select your penalty exception inside of Turbo Tax, after entering the 1099-R. The penalty is addressed a few screens after the 1099-R summary, so you may not have gotten there yet.

You can also get to the penalty exception here:

  • Federal Taxes
  • Other Tax Situations
  • Additional Tax Payments
  • Extra Tax on Early Retirement Withdrawals.
  • Choose "Qualified Retirement Plan"
  • Separation from Service the Year After age 55.

Qualified retirement plan distributions (does not apply to IRAs) you receive after separation from service when the separation from service occurs in or after the year you reach age 55 (age 50 for qualified public safety employees).

https://www.irs.gov/pub/irs-pdf/i5329.pdf

View solution in original post

ChristinaS
New Member

I took a 401k distribution but was > 55 and withdrew same year as terminated. I was charged penalty but should not have been.

Sorry- you did state that you left job. I'll correct that.
danhilde
Level 3

I took a 401k distribution but was > 55 and withdrew same year as terminated. I was charged penalty but should not have been.

When I choose 'Extra Tax on Early Retirement Withdrawals', I only see 'No Early Retirement Withdrawals'.  I do not see where I can specify 'Separation from Service the Year After age 55'.
ChristinaS
New Member

I took a 401k distribution but was > 55 and withdrew same year as terminated. I was charged penalty but should not have been.

That means you aren't being penalized to begin with.
ChristinaS
New Member

I took a 401k distribution but was > 55 and withdrew same year as terminated. I was charged penalty but should not have been.

The penalty is already NOT on your return.
danhilde
Level 3

I took a 401k distribution but was > 55 and withdrew same year as terminated. I was charged penalty but should not have been.

Thank you.  Evidently the real time increase in taxes owed when I entered the distribution might have been due to higher income 'bracket' then.  Crushed here but do appreciate your replies.  Don't be a divorced man in America; you're screwed.  Ugh.
ChristinaS
New Member

I took a 401k distribution but was > 55 and withdrew same year as terminated. I was charged penalty but should not have been.

Yes, you do of course owe tax... and withholding is often not enough. Most refunds go down after adding a 1099-R. Well, I'm a woman... but I'll take your word on that one:-)
danhilde
Level 3

I took a 401k distribution but was > 55 and withdrew same year as terminated. I was charged penalty but should not have been.

Thank you, again, Christina; I appreciate your help very much.  Happy tax season.
ChristinaS
New Member

I took a 401k distribution but was > 55 and withdrew same year as terminated. I was charged penalty but should not have been.

Thank you. I appreciate it:-)
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