Will I be subject to the 10% penalty if I withdraw funds out of an old 401-K? I will 59 1/2 when I do this. How does Turbo Tax calculate this?

[bhoward1963]

I will actually be 59 and 9 months to be exact.

[xmasbaby0]

If you take money out of a 401K before you are 59 1/2, you are subject to a 10% early withdrawal penalty.  You say you will be OLDER than 59 1/2 when you take the distribution, so that you will not be subject to an early withdrawal penalty.   You will, of course, be subject to ordinary income tax on the withdrawal.   When you take your money out, the fund will withhold an estimated amount for tax---similar to the way an employer withholds tax from your paycheck.

You will receive a 1099R to enter on your tax return at tax time next year.   Your tax will be calculated based on the total amount of income you had and on the amount of tax withheld from the distribution.  The money will be taxed at the same rate as your other income.

[DoninGA]

You will receive a Form 1099-R for the withdrawal.  The plan administrator should enter a Code 7 in box 7 of the Form 1099-R which indicates it is a Normal Withdrawal so that you will not be assessed the 10% early withdrawal penalty when you file the 2023 tax return.

[Opus 17]

---

@DoninGA wrote:

You will receive a Form 1099-R for the withdrawal.  The plan administrator should enter a Code 7 in box 7 of the Form 1099-R which indicates it is a Normal Withdrawal so that you will not be assessed the 10% early withdrawal penalty when you file the 2023 tax return.

---

Make sure the plan administrator knows your correct birthdate.

If the 1099-R has the wrong code, it can still be fixed in Turbotax to not assess the penalty, but the mismatch might trigger IRA attention.