How do we estimate 2017 taxes in Turbo Tax?

"...believe we wil lhave to make quarterly estimated tax payments this year."

First off, you may not have to pay estimated taxes, if by "have to" you mean "we don't want to pay penalties to the IRS when we file our income tax return."  It's perfectly OK to owe the IRS a ton of money when you send in your income tax return as long as you are not "underpaid", (a piece of tax jargon that has a specific legal meaning), and incurring underpayment penalties.

Most taxpayers will avoid being underpaid if they:

1)owe less than $1,000 in tax after subtracting their taxes WITHHELD and available tax credits,

OR

2)if they paid at least the lesser of
          a)90% of the tax for the current year, or
          b)100% of the tax shown on the return for the prior year.  (If last year's return shows AGI over $150K (for married filing jointly) then change that "100%" figure to "110%.)

So if you have a job or jobs and can make your withholdings paid in 2017 amount to 100%/110% of last year's tax liability, (that's line 63 for most taxpayers),  you may choose not to pay estimated taxes. You might still write a big check to send in with your tax return, but you won't be assessed penalties.

If you don't want to write that big check and/or you don't want to increase the amount withheld from your paycheck then estimated taxes are due more or less quarterly (typically April 15th, June 15th, September 15 and January 15th of next year).

Since you didn't receive the income until after the due date for the April 15th, (this year actually April 18th), due date you can simply divide the amount of estimated taxes you decide to pay by 3 and pay accordingly.  If you do this then with the "first pass" of your 2017 income tax return TurboTax might tell your that you're underpaid.  That's because the underpayment penalty is calculated on a quarter-by-quarter basis and the "first pass" assumes that income came in smoothly throughout the year, making you "underpaid" for the first quarter.  That's not really a problem as the TurboTax interview will ask if you want to "annualize" your income, to which you answer "Yes".  In the annualization process you tell the IRS how your income actually flowed to you over the four quarters of the year, removing 1/4th of that 401(k) income out of the first quarter, eliminating the penalty.

"What are we doing wrong?"

My seat of the pants answer is to say "you're using an online version of TurboTax instead of a desktop version", but since I don't use an online version - and never will if I can help it - that's really not an appropriate response.  I can tell you what to do in the desktop world of TurboTax and maybe that will help.

In the desktop version you'd click the "Other Tax Situations" tab and then select the "Form W-4 and estimated taxes" interview.  That interview assists you in changing your Form W-4, if you want to, but that interview also allows you to work through your best estimates of what your 2017 income tax return will look like, (it displays 2016 amounts to help you here), and then based upon your input gives you options for making estimated tax payments and will even prepare Form 1040ES vouchers to print out and send in with your checks.  Presumably the online version has the same utility.

It does seem like you have a pretty good estimate of how much additional taxes will be required in 2017 because of the 401(k) distribution and since you now have some understanding of how much to pay in order to avoid being "underpaid" you might simply download the Form 1040ES vouchers here:

https://www.irs.gov/pub/irs-pdf/f1040es.pdf

(the vouchers themselves are down at the bottom of the PDF), and fill them out by hand.  

Tom Young