Roth 401k early withdrawal penalty

[kevpak03]

I previously worked for a company that offered a Roth 401k. I started a new position and rolled the Roth to a Betterment Roth IRA. Soon after, I decided to make an early withdrawal - the amount was only 1400. After I input the 1099-R, my federal refund drops $500. Is this normal?

[dmertz]

$500 of tax is probably incorrect.  If the $1,400 distribution was only a small portion of your Roth IRA balance, it's likely that none of the $1,400 distribution is taxable.

The amount of original contributions that you made to your Roth 401(k) (shown in box 5 of the Form 1099-R reporting the rollover from the Roth 401(k)) became contribution basis in your Roth IRA as a result of the rollover.  When you click the Continue button on the Your 1099-R Entries page and proceed through the general follow-up questions, be sure that TurboTax shows the amount of basis rolled over from the Roth 401(k) included in the amount of your Roth IRA contribution basis.

[MargaretL]

Yes, it is normal and common to have a refund dropped when reporting early withdrawal from a retirement plan, unfortunately. When the distribution is an early withdrawal, you are subject to an additional tax of 10% (unless certain exception applies) and the distribution is subject to your "regular" ordinary income tax based on your total taxable income reported. You may have paid taxes on the withdrawal (box 4 on the form), but most likely it does not cover all other taxable income, that's why the refund drops. The tax return will drop to reflect the penalty and ordinary tax on your income tax return.