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Yes, you can request a penalty waiver if you have a valid reason, a reasonable cause for failing to take the distribution and you took actions to correct it. If this is your first offense, IRS will most likely wave the penalty.
Here's what you have to do. You can also find it instructions for 5329 form.
1. Complete lines 52 and 53 as instructed.
2. Enter “RC” and the amount you want waived in parentheses on the dotted line next to line 54. Subtract this amount from the total shortfall you figured without regard to the waiver, and enter the result on line 54.
3. Complete line 55 as instructed. You must pay any tax due that is reported on line 55.
The IRS will review the information you provide and decide whether to grant your request for a waiver.
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If you can do it in Turbo Tax? Maybe. I do not use Turbo tax and most softwares used by tax professionals will allow you to do certain overrides. Turbo tax, like other retail softwares are less flexible when it comes to special situations. You have to try to figure it out or contact TT help.
You cannot show your 2016 distribution on your 2016 tax return. It will be claimed next year. Just because there's no tax it doesn't automatically mean that there's no penalty. The penalty is added at the very end, after all deductions and credits.
Yes, I ma sorry. You always claim income (distribution) in the year you received the money and deduction in the year you paid the expenses. There are some exception to the rule but those apply only to special situations like adoption or business start up.
Here's Turbo Tax customer support site:
Another option is to prepare and file the return on paper.
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