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ribeye67
New Member

It looks like Turbo Tax is applying the early withdrawal penalty to an inherited 401K distribution. Has anyone noticed that?

20% taxes were withheld with the distribution. Box 7 had 4-death entered on the 1099-R. Yet turbo tax went from a refund of ~$9,000 to owing ~$9,000 from a $147,860 401K inheritance from my Wife's brother. It looks like they must be applying the early withdrawal penalty. Is something wrong with the software?
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ColeenD3
Expert Alumni

It looks like Turbo Tax is applying the early withdrawal penalty to an inherited 401K distribution. Has anyone noticed that?

If you want to be sure that this is the case, look at Schedule 2 Line 6 Additional tax on IRAs, other qualified retirement plans, and other tax-favored accounts.

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2 Replies
ColeenD3
Expert Alumni

It looks like Turbo Tax is applying the early withdrawal penalty to an inherited 401K distribution. Has anyone noticed that?

If you want to be sure that this is the case, look at Schedule 2 Line 6 Additional tax on IRAs, other qualified retirement plans, and other tax-favored accounts.

**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"

View solution in original post

ribeye67
New Member

It looks like Turbo Tax is applying the early withdrawal penalty to an inherited 401K distribution. Has anyone noticed that?

Thank you, that is helpful. I don't see anything on Schedule 2, Line 6 so I was wrong about the 10% being added.  I guess that means that I paid 20% tax on the $147,860, and I have to pay ~$18,000 (combined state and federal) additional because 20% wasn't enough. The extra income must have really bumped us up into an expensive tax bracket.

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