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Why when I enter a 1099r form(401k early withdrawal form) my federal return went down about 30%. I already paid the Fed taxes at the time of distribution. I thought it was only supposed to be 10% dedu
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When taking an early distribution from a retirement plan, you are often advised about the 10% early distribution penalty and that the distribution will be taxed. When taxes are withheld, the reality is that the early distribution penalty may be taken care of, but the amount that the distribution will raise your income tax is often overlooked.
When the distribution is added to your other income items on your return, you may have been moved into a higher tax bracket. Or, the taxes that were withheld from your early distribution may be making up a shortfall in withholdings from your other sources of income.
The bottom line is that the early distribution and the taxes withheld is not considered a taxable event on its own. It must be integrated with the rest of your tax return to see the full impact.
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