What do I claim for an employer terminated retirement account we received money from in 2023

[TomK2023]

If you took a distribution from your 401(k) or another qualified retirement plan (excluding IRAs) before you turned 59 1/2, you'll pay a 10% early withdrawal penalty, with a few exceptions:

• Death, or total and permanent disability
• Qualified Domestic Relations Order
• Series of substantially equal periodic payments based on life expectancy
• Dividend pass through from an ESOP
• IRS levy
• Unreimbursed medical expenses that are more than a certain amount of your adjusted gross income
• Certain distributions to qualified military reservists called to active duty
• Separation from Service if age requirement is met
• In-plan Roth rollovers or eligible distributions contributed to another retirement plan or IRA within 60 days
• Distributions to qualified public safety employees after separation from service on or after December 30, 2022
• Distributions to terminally ill individuals certified by a physician after 12/29/2022
• Qualified disaster recovery distributions

Effective in 2024, the following exceptions will apply:

• Victims of domestic abuse that occurred within the previous 12 months by a spouse or domestic partner
• Distributions using the financial emergency exception are limited to one per calendar year and a maximum amount of $1,000
• Certain distributions on eligible work plans for short-term emergency needs not to exceed $2,500

Once you enter the distribution information from your 1099-R form, we'll help you check for any exceptions that could reduce the tax.

Plan termination by the employer is not an exception.

You still had the opportunity to rollover this amount into an IRA (or open a new account), but did not exercise that option.  Thus, you will be required to pay a 10% penalty in addition to the 20% withholding tax.  TurboTax will compute this amount after you enter your 1099-R form that you received for this withdrawal.

TurboTax FAQ: What are the exceptions to the penalty for an early withdrawal from my 401(k)?

@slovelace 

[Edited 3/19/24 | 11:01am PST]

 

[Opus 17]

Even though the employer closed the account, you don't get a penalty exception because you could have rolled over the money tax- and penalty-free into an IRA within 60 days (you can open your own IRA at many banks and brokers).  If you don't qualify for one of the regular 401k exceptions, then you owe tax plus a penalty.

https://ttlc.intuit.com/turbotax-support/en-us/help-article/retirement-benefits/exceptions-penalty-e...

You must report the withdrawal from the 1099-R, the actual tax is calculated on your tax return.  You get credit for the withholding, and you might owe more, or if the withholding was more than the tax, the extra is added to your refund.