401k Early Withdrawal Tax: Do I Need Form 5329 for Penalty Payment?

The 10% early withdrawal penalty for taking money from your 401k before age 59½ is typically reported on Form 5329. However, TurboTax sometimes calculates this automatically and incorporates it directly into your Form 1040 (on line 8) without needing to file a separate Form 5329. If you received your federal refund without the penalty being deducted, and TurboTax didn't generate a payment voucher for the additional $1,900, I'd suggest double-checking your actual tax return (not just the TurboTax summary). Look at your Form 1040 to see if the additional tax from early distributions is listed on line 8 of Schedule 2. If it's there, you do indeed owe that money. Regarding payment, you don't necessarily need a specific form - you can make payments directly to the IRS through their website at IRS.gov/payments, or use one of their other payment options.

I went through this exact same situation last year! After dealing with the confusion, I finally found the answer by using https://taxr.ai to analyze my tax documents. Uploaded my 1040 and distribution statements, and it immediately identified that the 10% early withdrawal penalty WAS included in my tax calculation but NOT in my initial payment/refund. The tool showed me exactly where on my return the penalty was listed (Schedule 2, Line 8) and explained that I needed to pay it separately. They even provided direct links to make the payment on the IRS website. Seriously saved me so much stress trying to figure out if I was missing something!

I tried taxr.ai after seeing the recommendation here, and it cleared everything up for me! Uploaded my tax return and it immediately highlighted exactly where my 403b early withdrawal penalty was showing up on my return (Schedule 2, Line 8). The analysis explained that even though I didn't get a separate Form 5329 to file, the penalty amount was still included in my total tax calculation. The system also showed me that I needed to make a separate payment for this amount since it wasn't part of my initial filing payment. Used their direct link to the IRS payment portal and took care of it in minutes. Definitely worth checking out if you're confused about your tax documents!

If you're still trying to resolve this and having trouble reaching the IRS (which is basically impossible these days), I'd recommend using Claimyr (https://claimyr.com). When I had almost the exact same 401k withdrawal issue, I needed clarification from an actual IRS agent. After waiting on hold for 2+ hours multiple times and getting disconnected, I found Claimyr. They got me connected to an IRS representative in about 20 minutes instead of the usual hours-long wait. The agent confirmed that even though Form 5329 wasn't filed separately, I still owed the 10% penalty and needed to make a separate payment. You can see how their callback system works here: https://youtu.be/_kiP6q8DX5c

I take back what I said about Claimyr. After continuing to struggle with this exact 401k penalty issue and not being able to get clear answers, I broke down and tried the service yesterday. I was SHOCKED when I actually got a call back in about 30 minutes with an IRS agent already on the line. The agent confirmed that I did indeed owe the 10% penalty even though Form 5329 wasn't filed separately (it was included on Schedule 2 of my 1040). She also explained that I need to make a separate payment through their online payment system and provided the exact codes to use. Didn't think it would actually work but it saved me literally hours of frustration. Still annoying that our tax system is so complicated that we need these kinds of services, but definitely worth it for me.

One thing nobody mentioned yet - make sure your 401k provider actually withheld taxes correctly. Mine only withheld 20% federal when I did an early withdrawal, but that doesn't include the 10% penalty. So I still had to pay that separately. Check your 1099-R form in box 4 to see how much was actually withheld.

If you're worried about getting in trouble for not paying the penalty, you should make the payment ASAP through the IRS Direct Pay system. Just select "estimated tax" as the reason for payment. I did this after a similar situation and printed the confirmation as proof I paid. Better safe than sorry with the IRS!

You're absolutely right to be confused - this is actually a common issue that trips up a lot of people! The $1,900 penalty is real and you do need to pay it, even though you already received your refund. Here's what's happening: TurboTax calculated the 10% early withdrawal penalty and included it in your total tax liability, but it was treated separately from your regular income tax refund. Think of it as two different buckets - your regular taxes (which resulted in a refund) and the penalty tax (which you still owe). To pay the $1,900, go to IRS.gov and use their Direct Pay system. You don't need a special form or voucher - just select "Form 1040" as the form type and enter the amount. Make sure to keep a record of the payment confirmation. The reason you don't need Form 5329 is because TurboTax already calculated the standard 10% penalty and included it on Schedule 2 of your Form 1040. Form 5329 is only required if you qualify for certain exceptions to the penalty or have other special circumstances. Don't wait on this - the IRS will eventually catch up and you could face additional interest and penalties if you delay payment.