TurboTax Premier Windows Desktop not flagging early IRA distribution for penalty or asking about exemptions

[waisaacs]

I've entered a 1099-R with an early distribution, with code 1 properly indicated in Box 7.  Gross Distribution Box 1 and Taxable Amount Box 2a both have the correct distribution amount.  TurboTax tells me as expected at this point that it will be subject to penalty and tax.  But when I look under Other Tax Situations / Extra Tax on Retirement Withdrawals, it says there is no extra tax to pay because I took no withdrawals from retirement accounts before retirement age (I am not yet 59 1/2).  The amount of the distribution is small, under $20, if that matters somehow (though again when I entered the 1099-R, TT told me to expect a $2 penalty).

TT did not generate a form 5329.  If I open that form, line 1 Early distributions includible in income is blank (the whole form is blank).  If I double click the line 1 box, it allows me to select the 1099-R with the early distribution as the source, but it doesn't populate.

Program updates are current, and the Federal Review / Smart Check did not notice any problems.

I expect to claim medical expenses as the exemption for this withdrawal, but TT hasn't prompted me for that.  I suspect/suppose there's a way to override and force-fill the 5329 but I worry that's going to put things in some inconsistent state or otherwise mess up my eFile.  I'd prefer TT to behave as expected.

Any advice appreciated, especially if I'm completely missing something and TT is doing things right somehow.  This feels a little buggy, but I'm happy to be wrong.

[DanaB27]

Do you have a $2 entry on line 8 of Schedule 2?

"You received a distribution subject to the tax on early distributions from a qualified retirement plan (other than a Roth IRA). However, if distribution code 1 is correctly shown in box 7 of all your Forms 1099-R and you owe the additional tax on the full amount shown on each Form 1099-R, you don’t have to file Form 5329. Instead, see the instructions for Schedule 2 (Form 1040), line 8, in the Instructions for Form 1040, or the Instructions for Form 1040-NR, for how to report the 10% additional tax directly on that line." (Form 5329 Instructions)

If do not have an entry on line 8 of Schedule 2 then it would be helpful to have a TurboTax ".tax2022" file that is experiencing this issue. You can send us a “diagnostic” file that has your “numbers” but not your personal information. If you would like to do this, here are the instructions for TurboTax Download: 

1. On your menu bar at the very top, click "Online"
2. Select "Send Tax File to Agent"  
3. Click "Send"
4. The pop-up will have a token number
5. Reply to this thread with your Token number. This will allow us to open a copy of your return without seeing any personal information.  

We will then be able to see exactly what you are seeing and we can determine what exactly is going on in your return and provide you with a resolution.

[waisaacs]

Thanks for the reply.  My Schedule 2 is not populated, so no entry on line 8.

I've sent the file, token 1115788.

Let me know if you need more information here.

[DanaB27]

Thank you, I reviewed your token. You won't have to pay the 10% penalty because you had the basis in your traditional IRAs. $19 of your basis is used for the IRA distributions and the rest is used for the conversion. Therefore, $19 of your conversion is taxable (see line 18 of Form 8606). You can see the calculations on the Taxable IRA Distribution worksheet.

Therefore, you correctly don't have to pay the 10% early withdrawal penalty. 

"The tax on early distributions doesn't apply to the part of a distribution that represents a return of your nondeductible contributions (basis)." (Pub 590-B)

@waisaacs 

[waisaacs]

Thanks for reviewing this and for the details.