Should turbo tax calculate 10% distribution penalty on military retirement pension if under 59 1/2?

[mjdominiqu]

Especially if military pension is a non-qualified plan

[SteamTrain · Accepted solution]

If you turned 59.5 at any time during 2020.....That's a bug....right now you have to say NO to the question about receiving any of it under age 59.5 in order for it to post properly in the 2020 software....but the IRS isn't doing anything with any tax files before 12 Feb, so there is time for TTX to correct it .  See the discussion here...when it was first identified:

https://ttlc.intuit.com/community/retirement/discussion/re-the-10-early-withdraw-rule-doesn-t-apply-...

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@Katie_B   You do have someone at TTX working on this ???

[mjdominiqu]

Thanks!  Will monitor for fix but in interim will answer no on 59 1/2 question.

[Katie_B]

@SteamTrain I was unable to locate your email in the SWC inbox but no worries, I believe I have the information I need and am looking into it now. Thank you!

[SteamTrain]

@Katie_B 

Just an FYI:   Here's the text I posted in my email about that on 1/9/2021.  No indication in my SENT box that it bounced.

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"Moderators.:

Review the following discussion:

https://ttlc.intuit.com/community/retirement/discussion/re-the-10-early-withdraw-rule-doesn-t-apply-...

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THE Online 2020 software (Premier in my case) is treating a military (non-qualified) 1099-R, code 7 as being subject to penalty.

….BUT only in the tax  year they turn 59.5.   None of it should be penalized. 

IF the same person is (say) 56, with the same 1099-R…no penalty is assigned.

Desktop 2020 Premier software appears to treat it properly…no penalty.

Steamtrain"

[Katie_B]

@SteamTrain Still working on this, but I did want to check in with you. I do get the same result, but in my testing I noticed that it seems to happen specifically for me when box 2a is checked for "Taxable Amount Not Determined". If I uncheck that box and put $0 in box 2, the penalty seems to go away. This may or may not work as a workaround, let me know if it does and if you get the same result in TurboTax Online. Thanks!

[SteamTrain]

Nope....You can't do that.   Having the zero makes all the income Federally non-taxable (removed from line 5b in the  1040) and it  is Federal taxable income.  and who knows what that would do on the various state tax returns....I think some use box 2a, and some use box 1 on the 1099-R.   

And it happens on my test return without that box being checked.....it would not be checked on most all Military Retirement 1099-R forms (guess there could be exceptions) .

As a "workaround" just saying "No" to the did you receive any before age 59.5 is safer and simpler.

[Katie_B]

Read you loud and clear, thanks for verifying. Do you happen to have a token number for that file? Hope your weekend is going well!

[mjdominiqu]

Where would I find token number?  Tried to email by replying to notification email but received trasmittal failure reply.

[DoninGA]

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@mjdominiqu wrote:

Where would I find token number?  Tried to email by replying to notification email but received trasmittal failure reply.

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Using the TurboTax online editions, click on Tax Tools on the left side of the program screen.

Click on Tools

Click on Share my file with Agent

[SteamTrain]

My Token number is 711534

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Currently set to "No"   to the question about receiving any $$ before age 59.5

Military 1099-R listing in table is "DFAS"

State form attached is for NC, so I imagine that software must be installed in whatever system checks the flow & data.

[Katie_B]

Excellent, thank you! I have forwarded this to the team and will get back with you once I hear from them.

[SteamTrain]

Just remind them that it's the "Online" software only.

I didn't see it as a problem with the Desktop software. I just checked again after the recent update.   

AND....Yes, the desktop software still asks the question about receiving any of the $$ before age 59.5...but it doesn't apply any penalty to a supposed DFAS 1099-R as long as box 7 is a "7" and you can answer either YES or NO with no penalty effect...since it's immaterial in this situation. 

 (as long as it's tagged as a non-qualified plan on the next page)

[peterstribe]

Reading the answers to this concern it appears it is focused on tax year 2020.  I'm being asked if received early distributions on my military retirement in 2021.  I turned 59 and 1/2 during 2020.  Do I answer no to the question in turbo tax?  My wife is not be asked this question because she has not reached this age. 

[peterstribe]

Correction:  I turned 59 and 1/2 in 2021