I’m wondering if there’s an issue with how my 401(k) withdrawal is being calculated. Could it be triggering excessive taxes or penalties?

Forum|Forum|1 year ago
March 2, 2025
1 reply
0 views

First, in 2023, my blended tax rate was 11.1%, but in 2024, it's showing a 42.2% rate, which is extremely high for just $8,256 in taxable income. That doesn’t add up. Second, my tax liability seems off. In 2023, it was $3,673, and in 2024, it’s $3,486. My taxable income dropped from $33,229 to $8,256, but the tax liability only decreased slightly. Shouldn’t it be a lot lower with such a significant drop in income? Finally, I see I’m getting a refund of $4,409, but when I look at the total taxes paid ($7,895), that seems like too much was withheld. Is it possible that there was excessive withholding on the 401(k) withdrawal, or maybe it’s being double-counted?

MonikaK1

There can be several reasons why your tax liability increased while your taxable income decreased.

If you withdrew from a 401(k), depending on how you answered the interview questions, TurboTax may have calculated the 10% early withdrawal tax on top of the income tax. Revisit the Pension Income section, and be sure to click "Continue" when it appears after entering the form so that you answer the follow-up questions that help TurboTax determine whether the additional 10% tax applies.

Double-check your entries for income, taxes paid, and deductions to confirm they are correct. Compare the individual line items with last year's return as well, if applicable.

See this help article for more information about changes that can affect your refund.

A blended tax rate, also known as the effective tax rate, is derived from a number of factors. The effective tax rate for individuals is the average rate at which their earned income, such as wages, and unearned income, such as stock dividends, are taxed. If you received income from a variety of things like stocks and bonds, interest, dividends, or self-employment, they may all play a role in determining your blended tax rate.

Note that taxes are often calculated using a different method than the tax tables. For example, if you have capital gains, the tax on those is calculated at the capital gain rate for your income level. If you are self-employed, you may have self-employment taxes in addition to income taxes.

To see how the tax brackets apply to you for this year, and for a tool to determine your marginal (the highest part of your income) tax rate, see here.

Double-check your entries for income, taxes paid, and deductions to confirm they are correct. Compare the individual line items with last year's return as well, if applicable.

You can preview your return before filing to review the forms that TurboTax has prepared from your entries and to find out how your taxes were calculated. See here for details.

Please see this TurboTax tips article regarding early withdrawals.

Please see this TurboTax help article regarding exceptions to the penalty.

**Say "Thanks" by clicking the thumb icon in a post**Mark the post that answers your question by clicking on "Mark as Best Answer"