IRS allows exemption to the IRA early distribution penalty for Birth or adoption (up to a $5,000 per qualifying birth or adoption). I do not see a way to do that in TT?

[daznad]

We took a distribution because we had a child born in 2020 but TT seems to think we owe the additional 10% penalty and I don't see that exemption as something I can select to indicate we should not owe that penalty

[ToddL99]

Choose "Another reason" from the list of exceptions to the early withdrawal penalty.  As you go through the 1099-R interview there will be a screen that lists the exceptions. 

(The qualifed birth or adoption exception to the early withdrawal penalty is a new provision of the tax law and is not included in the "Learn more" tab for "Another reason").

Birth and Adoption Exception – The tax law provides for several exceptions to the early-withdrawal penalty, and Congress has added another one as part of the Appropriations Act of 2020 (SECURE Act). The new exception provides for penalty-free plan withdrawals for births or adoptions, for distributions taken from IRAs, qualified employer plans (such as 401(k)s) and government retirement plans after Dec. 31, 2019. However, the maximum aggregate amount of a qualified birth or adoption distribution by any individual with respect to any birth or adoption is $5,000, applied individually (so each spouse may separately receive $5,000 of qualified birth or adoption distributions).

[momof51989]

I had twins last year and withdrew all of my 401k early. For qualified "birth or adoption" can I enter in only $5,000 or $10,000? Do I also have to claim the twins on my income tax return for this to be eligible? Will I need to paper file?

[AbrahamT]

It seems that the early penalty reduction is 5,000 maximum regardless of how many children you had. See HERE . It doesn't indicate that this is per child. it says children plural.

Also, I'm not sure what you mean by claiming the twins on your income tax return. Aren't you indicating this on your personal information  by selecting adopted child for each of the twins that you are adopting. See here

[VolvoGirl]

@momof51989   Why wouldn't you be claiming the twins on your tax return?  

Be sure you said the new baby lived with you the WHOLE YEAR!   If you had a child born in 2022- Add them under My Info. You need to answer 2 questions…..

Did your child live with you for the whole year? Answer YES even if they were born late in the year (even on Dec 31).

Then was at least half of child's expenses paid by CHILD? Usually is NO.

[momof51989]

@AbrahamT I meant if I need to claim them as my dependents in order to avoid the tax penalty on withdrawing from my 401k early.

[momof51989]

@VolvoGirl My significant other had a job 2022 when they were born and I didn't. So he gets the child tax credit if he claims them. I did read somewhere that I can put $10,000 on the portion for qualified birth or adoption because they are 2 individual children.