How do I show that I took funds from my 401k to pay for my daughter's college? I believe I should only be penalized 20% vice 30%

[Anita01 · Accepted solution]

There is no 20% or 30% percent penalty.  The maximum penalty is 10%.  After you enter your 1099-R form, if the code is a 1 or the entries you make indicate this is an early distribution, you need to continue in the interview where you will be will be asked questions about whether you qualify for an exception to the 10% penalty based on what you did with the money.

If your answers indicate you qualify for the exception, any amount you owe on the distribution is regular income tax, not a penalty.  The amount of tax you owe is not based on this distribution but on the combination of all your income and expenses or deductions and credits, just like any other form of income.