I am 40 years old & had a total distribution of my one and only traditional IRA. I funded the IRA with nondeductible contributions & since they were greater than my distribution amount, I had a loss & am not subject to paying income tax on the distribution. The loss on my investment falls under Miscellaneous Deductions on Schedule A. So far, so good - I agree
My question is: TurboTax is not assessing me the early 10% withdrawal penalty on Line 59 on the 1040 - is this correct? Does it have something to do with the fact that I had a basis in the IRA? I have researched and wasn't able to find anything on point with my situation...I just assumed that I would be subject to the penalty...please advise if TurboTax is correct
The early withdrawal penalty applies only to the taxable portion of your early withdrawal. Since nondeductible contributions didn't get you a deduction when you made the contribution, you don't have to pay the early withdrawal penalty on that portion of the withdrawal. If your entire withdrawal consists of only nondeductible contributions, you won't owe any early withdrawal penalties.