I went through this exact situation about 6 months ago and completely understand the anxiety! Here's what I learned from my experience: First, don't panic - adjustment letters are actually pretty routine. The IRS processes millions of these each year. In my case, they had adjusted my refund because I accidentally claimed the wrong filing status (put single instead of head of household). The most important thing is to read through the letter carefully - there should be a section that explains exactly what they changed and why. Look for terms like "CP12" or "CP11" at the top - these are common adjustment notice codes. The letter should also have a phone number specific to your case and a timeframe for responding if you disagree. My advice: if the math looks right and you can see their reasoning, just accept it. If something seems off or you don't understand the adjustment, definitely call that number on the letter. Yes, you'll be on hold for a while, but it's worth getting clarity directly from them rather than guessing. Also, keep that letter safe - you'll need it for your records and if you ever get audited in the future, it shows the IRS already reviewed and adjusted that return.

I've been dealing with IRS adjustment letters for years as a tax preparer, and I want to emphasize something really important that hasn't been mentioned yet - timing is crucial with these letters. Most adjustment letters give you either 30 or 60 days to respond if you disagree with their changes. This deadline is NOT negotiable, so don't let the letter sit around while you're trying to figure out what to do. Even if you're still gathering documentation or trying to reach them by phone, you should send a written response by the deadline stating that you're disputing the adjustment and working on providing supporting documents. Also, a practical tip: when you do call the IRS, have your Social Security number, the tax year in question, and the exact notice number from your letter ready before you even dial. The automated system will ask for all of this information before connecting you to an agent, and having it ready speeds up the process significantly. One more thing - if you end up owing money due to the adjustment, you can usually set up a payment plan even for smaller amounts. Don't stress too much about having to pay everything at once if that's the case.

FYI - Make sure you're aware of the pro-rata rule if you have existing Traditional IRA balances!! This seems to be missed often. If you have any pre-tax money in ANY traditional IRA (including SEP or SIMPLE IRAs), you can't just convert your new non-deductible contribution tax-free. It gets prorated across all your IRA balances.

Just to add some clarity from my experience - I was in a similar situation last year and successfully completed a 2024 backdoor Roth in early 2025. The key is understanding that you have two separate deadlines: 1) You can make your 2024 non-deductible traditional IRA contribution until April 15, 2025, and 2) The conversion can happen anytime after that (it will just be reported on your 2025 taxes). The Vanguard rep was mixing up the deadlines. While it's true that many people prefer to keep both steps in the same calendar year for simpler record-keeping, it's absolutely not required. You're still well within the window to make your 2024 contribution and then convert it. Just make sure to properly document everything on Form 8606 for both tax years. One tip: If you do have existing pre-tax IRA money, consider the reverse rollover strategy mentioned by others to avoid pro-rata complications. And yes, plan for that 7-day Vanguard holding period if you're using them!

Does anyone know if using the free version through IRS Free File means you don't get certain features? Like will it still do all the calculations and check for errors like the paid versions? I'm always nervous about making mistakes on my taxes.

This is really helpful timing! I just got my W-2 and was dreading the whole tax filing process. I've used TurboTax for years but the fees keep going up - paid almost $120 last year for federal and state filing plus some "premium" features I probably didn't even need. Quick question though - when you say AGI under $41,000, is that before or after standard deduction? I'm a teacher and my gross salary is around $43k, but after my 403(b) contributions and other pre-tax deductions, my taxable income is definitely under $41k. Want to make sure I understand the qualification correctly before I get started with FreeTaxUSA. Also appreciate all the discussion about the other tools mentioned here. Sounds like there are more resources available than I realized for making tax season less stressful!

Just want to add some clarity on timing for anyone else in a similar situation. The 1099-R you'll receive from your 401k administrator is crucial - it will show the total distribution amount and have a distribution code (likely "1" for early distribution, no known exception). This form typically arrives by January 31st of the year after your withdrawal. When you file your 2023 taxes, you'll report the distribution on your Form 1040 as income, and then use Form 5329 to calculate the 10% early withdrawal penalty. The penalty is calculated on the full distribution amount ($15,700 in your case = $1,570 penalty) regardless of how much was withheld. One thing that might help for next year - if you're still employed somewhere, you could potentially increase your withholding from your current job's paychecks to help cover the extra tax burden from the distribution. This can help you avoid owing a large amount when you file.

Based on my experience as a tax preparer, I want to emphasize something that might not be obvious from reading your situation - the timing of when you took your distribution (August 2023) actually puts you in a tricky spot for estimated payments. Since most of your 2023 tax liability from this distribution occurred late in the year, the IRS generally expects you to have paid 90% of your total tax liability through withholding and estimated payments by December 31st. The $3,140 federal withholding from your distribution plus whatever was withheld from your regular W-2 job might not be enough to meet this threshold when you add in the $1,570 penalty. Here's what I'd suggest: Before you file, try to estimate your total 2023 tax liability including the penalty. If it looks like you'll owe more than $1,000 after all withholding and credits, you might face an underpayment penalty unless you meet one of the safe harbor rules. Sometimes it's worth making a payment before the filing deadline to avoid additional penalties on top of the early withdrawal penalty you're already facing. The good news is that for 2024, if you're still working, you can adjust your withholding early in the year to account for any similar situations. The IRS treats withholding as if it was paid evenly throughout the year, even if you increase it at the end.

I just wanted to add my voice to everyone else's reassurance here - you're absolutely fine! I went through a very similar situation when my grandfather passed and left me some money. I was convinced I'd messed up the taxes somehow and spent weeks worrying about penalties and audits. What really helped me understand the difference was thinking about it this way: gifts happen when someone chooses to give you money while they're alive, inheritances happen when someone has already passed and their estate distributes assets according to their will. The IRS sees these as completely different transactions. Your $60,000 inheritance doesn't require any action from you - no forms to file, no taxes to pay, and definitely no penalties for "late filing" since there was nothing to file in the first place! The fact that you were grieving and dealing with the loss of your grandmother is exactly why this money came to you as an inheritance rather than a gift. I know it's hard not to worry when family members mention tax obligations, but in this case you can put those concerns completely to rest. Your grandmother's bequest was her way of taking care of you, not creating a tax burden. Take comfort in knowing that her final gift to you is truly yours to keep without any IRS complications.

I'm so glad you found this community and asked this question! Reading through everyone's responses, it's clear you can completely stop worrying about this. The unanimous consensus from both tax professionals and people who've been in similar situations is that you have zero tax obligations here. What really stands out to me is how this situation perfectly illustrates why it's so important to ask for help when you're unsure about tax matters. Your initial panic was completely understandable - losing a loved one is incredibly difficult, and the last thing anyone should have to worry about during grief is whether they've inadvertently created tax problems. The beautiful thing about your situation is that your grandmother's bequest to you through her will is exactly what inheritance laws were designed to protect. You get to keep every penny of that $60,000 without owing the IRS anything or filing any forms. That money represents her love and care for you, not a tax burden. I hope you can now focus on honoring your grandmother's memory and perhaps using her generous gift in a way that would make her proud, rather than stressing about non-existent penalties. Sometimes the things that keep us up at night turn out to be complete non-issues, and this is definitely one of those times!