No. The "1" only affects the 10% penalty, not the income tax rate. Whether the code is 1D or 7D, the income tax remains the same.
Since this is a non-qualified annuity, you are only taxed on the earnings portion of the withdrawal, not the principal.
TurboTax calculates this based on the numbers in Box 1 and Box 2a, not the code in Box 7.
Yes. If the "1D" coding is causing you worry every year, switching to manual withdrawals is a clean way to fix that.
If you switched to manual withdrawals, the distribution will be correctly coded as 7D (Normal distribution), as you noticed with your manual withdrawal.
To change the distribution, contact the insurance company and tell them you want to terminate the SEPP systematic withdrawal plan.
Once the plan is terminated, you can take out as much or as little as you want, whenever you need it.
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