My job went bankruptcy and I was 55 years old and I took money out of my 401k. Where do I report it on my taxes to avoid the penalty

[DoninGA]

If the funds from the 401(k) were distributed in 2023 then you should have received a Form 1099-R with a code of 2 in box 7 of the form.

To enter, edit or delete a form 1099-R -

Click on Federal Taxes (Personal using Home and Business)
Click on Wages and Income (Personal Income using Home and Business)
Click on I'll choose what I work on (if shown)
Scroll down to Retirement Plans and Social Security
On IRA, 401(k), Pension Plan Withdrawals (1099-R), click the start or update button

Or enter 1099-r in the Search box located in the upper right of the program screen. Click on Jump to 1099-R

[KrisD15]

Additionally, when entered into the TurboTax program, please select "Separated from service after 55" for the exception. 

@Libbylee 

[dmertz]

Was the 401(k) that you took the money from the plan of the employer from which you separated from service at age 55?

[Libbylee]

Yes it is! 

[Libbylee]

I redrew the money from the former employee (that went bankrupt) and placed it with a new financial institution then I redrew money from it a few months later to live until I found another job! 

[Opus 17]

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@Libbylee wrote:

I redrew the money from the former employee (that went bankrupt) and placed it with a new financial institution then I redrew money from it a few months later to live until I found another job! 

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I think you screwed up.

If what you are saying is, you:

#1 rolled over the 401k to an IRA at your own broker of choice, and then

#2 withdrew money to live on from the IRA

then you lost the 10% penalty exception.  The age limit for an IRA is 59-1/2.  The age limit for a 401k is also 59-1/2, or 55 if you are 55 or older when you leave the company.  But that only applies to the 401k.  Once you move the money to the IRA, you lose the protection of that special rule. 

[Libbylee]

OMG!! Does this applies even if I  moved the 401k from one institution to another 401k in another institution!!!! 

[dmertz]

Just like moving the funds to and IRA, moving the funds to the 401(k) of a different employer eliminates eligibility to apply the age-55 exception.  To again be able to use the age-55 exception you would have to separate from service with the new employer.

[Opus 17]

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@Libbylee wrote:

OMG!! Does this applies even if I  moved the 401k from one institution to another 401k in another institution!!!! 

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You may need to clarify what you actually did, but the answer is likely yes, you lost the protection.  The rule is that you can withdraw if you are 55 or older when you separate from the plan sponsor.  For example, I am over 55, and I have a 403b plan with my old employer (A) and a separate 403b plan from my new employer (B). Even though I am over 55, I can't withdraw from plan A without a 10% penalty because I was not 55 when I separated from employer A.    

Once you rollover the money to an IRA, it's not a 401k any more.  IRA technically means "individual retirement arrangement" and for tax purposes, all your IRAs are treated as one single plan (arrangement) for your retirement benefit.  Once there is money in an IRA, it's all the same, there is no difference (for taxes) between a "rollover IRA" from a workplace plan, and an IRA you built up over time.

Then, if you rollover the IRA into a new 401k, it becomes part of the new 401k, and loses any attachment to the former employer.  This is true even if you do a direct rollover from old 401k to new 401k.