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bkrerow
New Member

I took a $45000 withdrawl from my 401k in 2016. I was age 56 & unemployed at the time. According to what I've found, the Rule of 55 should apply but TT isn't showing it

Is the "Rule of 55" built into the Turbo Tax methodology?  If not, why?  Should I just do my taxes manually in order to avoid having to pay the 10% penalty?
1 Reply
dmertz
Level 15

I took a $45000 withdrawl from my 401k in 2016. I was age 56 & unemployed at the time. According to what I've found, the Rule of 55 should apply but TT isn't showing it

The age-55 exception does not apply to just any distribution from a 401(k).  The age-55 exception only applies to distributions from a qualified retirement plan like a 401(k) if the plan is a plan provided by an employer from which you separated from service in or after the year you reached age 55.

Normally an employer will know your birthdate and the year in which you separated form service, allowing them to use code 2 in box 7 of your Form 1099-R to indicate that you are not subject to the early-distribution penalty and there is no need for Form 5329 at all.  However, even if the employer fails to use code 2 and uses code 1 instead, you can indicate to TurboTax that the distribution qualifies for this exception, allowing TurboTax to prepare Form 5329 indicating on line 2 the amount eligible for the code 01 age-55 exception.  You'll make this entry on the These Situations May Lower Your Tax Liability page.  You can reach this page by clicking Other Tax Situations -> Extra tax on early retirement withdrawals.

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