topic 401k penalty in Retirement tax questions

401k penalty

Testq — Thu, 26 Feb 2026 01:01:53 GMT

Hello I am being charged the 10% penalty but I paid over 20% when I withdrew the funds? Is there a way to correct this?

Re: 401k penalty

SharonD007 — Thu, 26 Feb 2026 01:29:39 GMT

No. The 20% that was withheld at the time of the distribution is federal income tax withholding. It is not a penalty — it is a prepayment toward any income taxes you owe for the year. That amount is included in the total taxes paid on your return and is applied against your overall tax liability.

The additional 10% charge is an early withdrawal penalty, which applies because the funds were withdrawn before age 59½ and no IRS exception applies. This penalty is separate from regular income tax and is calculated on the taxable portion of the distribution.

Refer to the TurboTax articles: An Early Withdrawal From Your 401(k): Understanding the Consequences and Video: A Guide to 401k and IRA Early Withdrawal for more information.

Re: 401k penalty

Testq — Thu, 26 Feb 2026 02:11:05 GMT

I paid an extra 10% at the time I withdrew it to cover any additional penalties.

Re: 401k penalty

JamesG1 — Thu, 26 Feb 2026 02:33:16 GMT

Perhaps you are eligible for an exception to the 10% penalty for early withdrawal. This TurboTax Help explains the exceptions available under Early distributions.

If you withdrew an extra 10% to cover any additional penalties, that means that you hoped to pay a 10% income tax rate.

You do not report how much income was reported on the IRS form 1099-R. It is possible that the taxable amount reported by the IRS form 1099-R moved you into a higher tax bracket where the highest taxable dollar may have been taxed at a rate greater than 10%.

As an example, this TurboTax Help displays the Single tax brackets of 10%, 12%, 22%, 24%, 32%, 35% and 37%. It may be that the marginal tax rate for the IRS form 1099-R income was taxed as high as 37%. Taxable income is reported on your IRS form 1040 on line 15.

@Testq

Re: 401k penalty

Testq — Thu, 26 Feb 2026 17:43:53 GMT

Thank you so much I will see what I need to add to the form to show the additional taxes paid.