Why do I owe taxes on an IRA rollover?

[funlakerz]

I changed jobs and received a 1099-R.  The bank statement listed it as a premature withdrawal, and charged an interest penalty of 132. The total amount was rolled over to a new retirement IRA with my new job, however I am being charged $400+ dollars in taxes for the original early distribution.  Is this correct?  If not, how do I enter the amount rolled over to the new retirement account?

[KenH1 · Accepted solution]

Assuming there is a "1" in box 7 of your 1099-R. TurboTax will initially calculate both income tax and an early distribution tax, but you''ll be able to claim an indirect rollover to reverse this.

In TurboTax, enter your 1099-R just as it is issued.  

The software will then ask a series of questions so the program can determine if the amount is taxable or not. 

At the What Did You Do with The Money screen indicate that I moved the money to an IRA or another retirement account and then select rolled over down below. 

There should be no effect on your taxes.