IRS allows for a $5k IRA withdrawal w/out penalty w/in one year of the birth of a child. I don't see where TT recognizes this exemption when filling out 1099-R info.

[brookeb2]

Child born December 2019.  Took withdrawal in early 2020.
When filling out 1099-R information, Turbotax does not provide this in the list of "uncommon situations".

[DoninGA]

On the list of reasons choose Another reason and enter the amount not to exceed $5,000

[dmertz · Accepted solution]

When claiming this particular Other reason exception, you are required to attach an explanation statement to your tax return providing the name, age and TIN of the child or eligible adoptee.  I don't see any way in TurboTax to create this statement, so it seems that you'll need to manually prepare the statement and include it with your printed and mailed tax return.

[brookeb2]

Thank you for the response.   

It seems like TT should update its software to allow for this information to be included electronically.   

I don't prefer the idea of having to print out the return and write this statement, etc. 

TT has all the information (Child DOB, TIN, etc.) in its system already.  

Hopefully, this gets fixed/updated.

If I have to write a statement, where are the instructions for exactly what is needed?    

Thank you!

[DoninGA]

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@brookeb2 wrote:

Thank you for the response.   

It seems like TT should update its software to allow for this information to be included electronically.   

I don't prefer the idea of having to print out the return and write this statement, etc. 

TT has all the information (Child DOB, TIN, etc.) in its system already.  

Hopefully, this gets fixed/updated.

If I have to write a statement, where are the instructions for exactly what is needed?    

Thank you!

---

As stated on the IRS Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts instructions page 4 - https://www.irs.gov/pub/irs-pdf/i5329.pdf#page=4

Qualified birth or adoption distributions.

Attach a statement that provides the name, age, and TIN of the child or eligible adoptee.

[brookeb2]

@dmertz @DoninGA 

Here's a problem I am having.

On the 1099-R, the investment firm included code "01", "no exception" in Box 7 (Distribution Code).   This is their policy, because they do not "confirm" exceptions.  Even though the IRS provides an exception code, "2", the investment firm will not use it.  

So, when TT asks me for the code, presumably, I have to include "01" in the software, which immediately hits me with a $500 (10%) penalty.   If I include code 2 (which is not on the form), then the penalty is not charged.

* The investment firm will not provide a corrected form *.

Accordingly, what can I do?   Can I input the exception code ("2"), and "trust" the IRS to not penalize me?    Using the software, this is the only way I can see to avoid the penalty.   If I include 1, even if I attach a certification of the birth of the child, the software still includes a $500 penalty.

Again, I appreciate your help, but there seems to be a roadblock at every turn here.

[DoninGA]

@brookeb2 What type of plan do you have?

You should enter the code 1 in box 7 of the Form 1099-R.  After entering the information from the 1099-R there will be a series of screens for you to complete.  Eventually you will come to a screen labeled These Situations May Lower Your Tax Bill.  Enter the $5000 amount in the box labeled Other Reason and continue.  The 10% early distribution penalty will be removed.  However, if the distribution was over $5,000 any remaining distribution over $5,000 is still subject to the early distribution penalty.

[macuser_22]

To qualify for that exemption, you are also required to attach a statement to your mailed paper return (there is no way to attach the statement to a e-file)  See IRS form 5329 instructions page 2.

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

Quote from the 5329 instructions:

A qualified distribution from a retirement plan for the birth or adoption of a child of up to $5,000 if made during the 1-year period beginning on the date your child was born or adopted. Attach a statement that provides the name, age, and TIN of the child or eligible adoptee.

[brookeb2]

Thank you. 

It is a traditional IRA.  

I will try it with a “1” and let you know how it goes.   

[dmertz]

Code 1 is the correct code for the payer to have used in box 1; you must enter the code provided by the payer.  Entering code 2 instead will only cause problems.

The payer plays no part in determining whether you had a birth or adoption that would qualify you for this exemption.  It's your responsibility to include Form 5329 with your tax return claiming this as an Other reason exception, which TurboTax does when you enter the amount in the Other reason box on the page where you enter the amounts eligible for a particular penalty exception, in this case not to exceed $5,000.  What TurboTax does not do is provide you with a way to attach an explanation.

[brookeb2]

@dmertz @DoninGA @macuser_22 

Thank you.  I walked through it and got rid of the $500 penalty, the correct way.

This forum helped me.  I was trying to avoid paying TT a fee to get the answer directly from an "expert".

Thanks to all.

(Next step, doing the paperwork correctly).