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Jacy
Jacy, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 568
Experience:  Nine years individual income tax preparation and consulting
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My question is regarding a lump sum distribution received from

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My question is regarding a lump sum distribution received from my husband's Thrift Savings Plan. He was separated from civil service under the Civil Service Retirement System at the time of the distribution and was age 55. We received a 1099-R for the distribution showing "total distribution" and what amounts to 20% federal income tax withheld.
When entering the 1099-R info. in TurboTax, we are being charged an extra 10% tax.
Why?

Jacy :

Hello,

Jacy :

The program automatically includes the 10% penalty since you are under 59 1/2.

Jacy :

You will need to fill out form 5329 if an exception applies... I am looking it up now.

Jacy :

What distribution code is in box 7?

Customer :

2

Customer :

IRA/SEP/SIMPLE box between boxes 7 and 8 is blank

Jacy :

OK. Code 2 means there is an exception to the penalty. In Turbo tax, where you input the 1099R, does it ask for this code?

Customer :

Yes. And I entered it but my tax "amount due" still goes up by $10,000.

Jacy :

Basically, this code means you should not need to fill out form 5329. When you review your 1040, is the penalty on line 58, Additional taxes on IRA's...?

Customer :

Sorry, don't know. I didn't save the return yet in the program with this new 1099-R info. added

Jacy :

I do not use Turbo Tax so you may need to contact their customer service to find out how to get rid of the penalty. Or you can try using form 5329, but you shouldn't need to.

Customer :

OK. So it sounds like you think the penalty should not be applicable to my situation? I just need to contact TurboTax to see how to get rid of the penalty?

Jacy :

Yes. Code 2 means you have an exception to the penalty (you don't have to pay it). The distribution is still subject to regular income tax on the amount in box 2a.

Customer :

That's what I thought. I will try contacting TurboTax. Thank you very much for your prompt response. You have been very helpful.

Jacy :

Thank you and good luck!

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