TurboTax is claiming I have an early withdrawal penalty for taking money from my retirement plan. I did not do this, how do I stop it insisting I did?

[DanaB27]

To clarify, you did you enter a retirement distribution (Form 1099-R)? What kind of distribution was this (traditional IRA, Roth IRA, 401k)? Are you under 59 ½?

[zahneri]

I do have a 1099-R, which I did enter. My age is well below 59 1/2. Some was taken out for use 8+ years ago, but not since. So I am unsure why it insists on asking me what a withdrawal was used for in this last tax season.

Also, this was through an employer that I left last fall.

[DanaB27]

If you received and entered a 2022 Form 1009-R for a retirement distribution and are under 59 ½ then you will have to pay a 10% early withdrawal penalty unless you meet an exception.

If you rolled over the funds within 60 days into a similar retirement account then you can indicate this in the follow-up questions. Then this will be nontaxable and not subject to the 10% penalty.

1. Login to your TurboTax Account 
2. Click on "Search" on the top right and type “1099-R”
3. Click on “Jump to 1099-R” and enter your 1099-R
4. Continue "Tell us if you moved the money through a rollover or conversion" and select "I rolled over some or all of it to an IRA or other retirement account within the time limits (normally 60 days)"
5. Continue answering the questions.

[zahneri]

My confusion is because I did not do anything with it this year. The only thing that happened was that I left the job it was through. I did not make any withdrawals in 2022.

I did get a 1099-R and entered it. But, again, I DID NOT withdraw from it in 2022. So I cannot answer the required question of what I did with it, when I did NOTHING with it.

[DoninGA]

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@zahneri wrote:

My confusion is because I did not do anything with it this year. The only thing that happened was that I left the job it was through. I did not make any withdrawals in 2022.

I did get a 1099-R and entered it. But, again, I DID NOT withdraw from it in 2022. So I cannot answer the required question of what I did with it, when I did NOTHING with it.

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If you did not make a withdrawal why did you receive a Form 1099-R?  What is the code in box 7 of the form?

[VolvoGirl]

Did you have a loan against it you didn't pay back when you left that job?

[Dana3502]

I believe TurboTax has a programming problem with Roth distributions this year. I did a withdrawal from a Roth, which was part of my basis. I've had Roth accounts for way over 5 years. The program didn't even ask me the question regarding how long I had held it. Even when I later answered a question saying that it isn't taxable, TurboTax added tax. I did not have this problem when I withdrew a few years ago and submitted my return using TurboTax. I finally gave up trying to get it to re-calculate and used a different software provider.

[dmertz]

@zahneri , as DoninGA asked, what is the code in box 7 of the 2022 Form 1099-R that you received?

Is the IRA/SEP/SIMPLE box marked?

If the balance in the account was less than $5,000, the employer was likely required to distribute the funds to you or roll them over to an IRA.

[zahneri]

Box 7 has Distribution code of 1, IRA/SEP/SIMPLE has no check.

There was no loan against it when I left.

The amounts in Boxes 1-2a is under $5K. 2b is checked for Total Distribution.

[VolvoGirl]

@zahneri   You didn't get a check for the net amount or a deposit?  Better ask them what happened to the money.

[dmertz]

Because the balance was below $5,000, the plan was required to close your account.  Before doing so they would have informed you of your options to roll the funds over to another retirement account like an IRA.  Failing to respond with instructions to roll the funds over would have resulted in the plan making a distribution paid to you.  You then could have still rolled the funds over, but you would have had to replace the portion withheld for taxes by substituting other funds to be able to complete the rollover of the entire gross amount.

[zahneri]

Thanks for trying everyone! I called them (finally got through) and they explained everything and actually have to send a revised form.

Thanks for all the help!