Why Didn't TurboTax Premier 2023 Apply the 10% Penalty for My Early Withdrawal from Traditional IRA?

[Angelbaby]

I lost money in my traditional IRA so I didn't have any income to report for it for 2023.  However, I did take an early distribution.  TurboTax Premier didn't apply the 10% early withdrawal tax penalty.  Who can I contact to fix this?

[BillM223]

Please see "Retirement topics: Exceptions to tax on early distributions" and look for exceptions to early distribution penalties for IRAs (middle column). Do any of these apply to you.

Also, how old are you?

Also, also, "I lost money in my traditional IRA so I didn't have any income to report for it for 2023." You don't report gains or losses in your IRA unless you close the account.

[VolvoGirl]

Did you get a 1099R for it?  What code is in box  7?  Check your birthdate under My Info.  Are you married?  Be sure to enter the 1099R under your name.  It doesn't show the 10% penalty on your return 1040 line 23 (from schedule 2 line 6)?

[Angelbaby · Accepted solution]

Hi! I did get a 1099R and it listed code 1. I didn’t take any taxes out when I took the distribution. I’m 51. I submitted a similar question on this forum and received the following response from another Level 15 member:

The 10% early-distribution penalty only applies to taxable IRA distributions.  If your traditional IRA distribution was nontaxable because your basis in nondeductible traditional IRA contribution was more than the amount of the distribution plus the value of your traditional IRAs at year end, there is no penalty.

[Angelbaby]

Hi! I’m 51 and none of the exceptions apply to me. I did get a reply from a Level 15 member to another post I made on the same topic. His reply was:

The 10% early-distribution penalty only applies to taxable IRA distributions.  If your traditional IRA distribution was nontaxable because your basis in nondeductible traditional IRA contribution was more than the amount of the distribution plus the value of your traditional IRAs at year end, there is no penalty.

[DawnC]

You will be assessed a 10% early with penalty on Form 5329 if you don't qualify for any of the exceptions.  @Angelbaby 

[Angelbaby]

@DawnC   My IRA has lost income per my non-deductible traditional IRA cost basis. I’ve kept my forms 8606 tracking my contributions since the beginning of my IRA. I do not qualify for any of the exceptions you list however I did not earn any income in my IRA. In fact I lost money. Per a level 15 member, who replied to relatively the same question I posted subsequently to this question, if I do not have taxable income per my non-deductible, traditional IRA cost basis I do not owe the 10% penalty. Please see his response below: 

“The 10% early-distribution penalty only applies to taxable IRA distributions.  If your traditional IRA distribution was nontaxable because your basis in nondeductible traditional IRA contribution was more than the amount of the distribution plus the value of your traditional IRAs at year end, there is no penalty.”

This would seem to align with the fact that TurboTax withheld nothing, not even the penalty. I now believe this must be because TurboTax handled the issue correctly per the Level15 member’s answer above.

Please let me know if this sounds right to you. I’d really appreciate it.

[DawnC · Accepted solution]

Yes, that is true, if there is no income, there is nothing to penalize.

[Angelbaby]

Thank you, DawnC!