Post tax 401k withdrawl penalty in 2022

[bhanesh]

I made post tax contribution to my 401K from 2021 September to 2022 March. I withdrew the money in Apr 2022 to pay for down payment on our house. I haven't made any earnings on this money. I lost 3% due to this withdrawl. I forgot to mention about this post tax withdrawl in my tax 2022 tax filing. 

Last month in 2025, I got a CP2000 letter from IRS asking me explain this distribution from year 2022.  IRS is asking me to pay both tax and early withdrawl penalty with interest. I responded to that letter saying that the distribution was related to post tax and attached 1099R, 401k statements. But IRS responded again with very vague letter not mentioning what specifically wrong in my explanation. One paragraph says additional 10% tax on early distribution very generally and other paragraph says that to do a amended return with new information.

After this letter, I tried using my turbotax 2022 desktop version to file amended return and I entered all the information from 1099R (Box 1 and Box5 are same amount and Code 1 for Box 7). This did not change my total taxable amount which is understandable as my withdrawl is related to post tax. It also did not add any early withdrawl penalty.

Am I expected to pay early withdrawl penalty for this distribution although it is post tax? When I spoke to one of the expert, they told me that I still have to pay the early withdrawl penalty as the distribution was before December 29, 2022. But when I do amended return in 2022 turbotax desktop version, it won't show this penalty.  What would be the right move here? Just file 2022 amended return with 1099-R information included? or accept that 10% early withdrawl penalty (This would make turbotax 2022 software wrong)?

[dmertz]

I think you are saying that you failed to enter this Form 1099-R before filing your tax return.  If so, the amount did not appear on Form 1040 line 5a as required along with being excluded from the amount reported on line 5b, which is what triggered the CP2000.

This would explain the request to file an amended tax return.  However, column B of the Form 1040-X will be all zeros and then only "new" information that the Form 1040-X would provide would be your explanation statement that you originally failed to include the distribution on Form 1040 line 5a and show it as nontaxable on line 5b.  (Given that  you will just be repeating the explanation that you've already provided, I suspect that either you received automated responses or whoever has examined this at the IRS was inadequately trained to be able to interpret the Form 1099-R as representing nontaxable income.)

An early-distribution penalty only applies to the taxable amount of a distribution.  With this distribution being nontaxable, this distribution is not subject to an early-distribution penalty.