TurboTax did not add Form 5329 for my 401(k) early withdrawal.

[tklein1668]

I made an early withdrawal on my 401(k) in 2023 which produced a 1099-R. I uploaded this to TurboTax and answered all of the questions. I know that I am subject to the 10% tax penalty for an early distribution and I do not qualify for any exceptions, so a Form 5329 should have been attached to my tax return to reflect the penalty owed to the IRS. TurboTax did not add this form. How do I amend my tax return to get this added? TurboTax wont let me add Form 5329 outright. I tried to amend my return and double checked the questions that I answered about my 1099-R for the early distribution, but nothing seems to prompt TurboTax to produce a Form 5329 with my tax return. I have been on the phone with them for an hour trying to get this resolved and they will not let me upgrade to the version that allows me to talk to a tax expert (I used the file yourself version). Anyone else have this problem? 

[DoninGA]

After you completed entry of the Form 1099-R and you had a 10% early withdrawal penalty for the 401(k), you would have come to a screen asking you to enter an exception to the penalty.  If you did not enter an exception then there would not be a Form 5329 included in your tax return.

Did you have an exception as described in this IRS Tax Topic - https://www.irs.gov/taxtopics/tc558

[tklein1668]

I did not qualify for any of the exceptions. The software did not produce the Form 5329. It did ask if I rolled over or converted any of this money, I marked that as 'no'. I assumed these were talking about converting it to roth or rolling over to a different retirement plan. That is the only question they asked that I was not 100% sure about. Either way, it did not produce a Form 5329. My distribution code is 1B if that helps. 

[DoninGA]

Was there an amount entered in box 11 of the Form 1099-R?

[tklein1668]

Yes. Box 11 says "1st year of desig. Roth contrib. 2018"

[VolvoGirl]

Check schedule 2 line 8 which goes to 1040 line 23 to see if you got charged the 10% Early Withdrawal Penalty.  

[DoninGA]

OK...There may be an issue but it is beyond my expertise with early withdrawal exceptions from a Roth 401(k).   The code 1 in box 7 of the 1099-R would preclude having a Form 5329 included with the return.  However, having an amount in box 11 maybe a cause for an exception.

I will page one of our experts on retirement plans for assistance.

@dmertz User has a code 1B in box 7 with 2018 entered in box 11.  I have been unable to find any instructions in Form 5329 for this situation even though Code B specifically indicates Form 5329 if Line 11 of the Form 1099-R shows an amount.

[tklein1668]

I did not have a schedule 2 on my tax return. 

I was on the phone with TurboTax for about a two hours and we were able to resolve the issue. I had a Roth 401(k), not a traditional 401(k), which means that after 5 years, there is no early withdrawal penalty. Since my box 11 said 2018 and I took the withdrawal in 2023, then the penalty was waived. Also, since it was a Roth, I didn't owe any income tax on the withdrawal. So I was able to avoid income tax AND the 10% penalty for those reasons. Big win!

Thank you for your quick responses! 

[dmertz]

Something is still wrong unless the taxable amount shown in box 2a is zero, which would be the case only if the amount in your Roth 401(k) at the time of the distribution was less than the amount of contribution basis in your Roth 401(k).  If box 2a is nonzero, TurboTax will have prepared Form 5329 unless you somehow mistakenly indicated that you rolled the money over to a Roth IRA.

Having the Roth 401(k) more than 5 years (indicated by "2018" in box 11) is irrelevant since you were under age 59½ at the time of the distribution, indicated by the code 1.

[tklein1668]

Taxable amount in 2a is zero. I did not indicate that I rolled this money over to a Roth IRA. 

This 401(k) was from an old employer. Maybe that is why? Either way the software did not prepare the Form 5329. 

The 'tax expert' at TurboTax assured me that this is correct. I was surprised as this was an early contribution and I had not met any of the standard qualifying exceptions. Her only explanation was that it was because it was Roth and had been there for at least 5 years. We walked through my entire process of how I keyed all of this into TurboTax and she had 20 years experience. So I took her word for it. Guess I will find out the hard way if the IRS sends me a bill lol. 

[dmertz]

Only taxable amounts are subject to an early-distribution penalty.  Because the distribution was not taxable (because of investment losses in the Roth 401(k)), it was not subject to penalty.  That's why TurboTax did not prepare Form 5329.