The age-55 exception applies only if the distribution is from the 401(k) of an employer from which your wife separated from service in or after the year she reached age 55. If she qualified, the Form 1099-R would normally have code 2 in box 7 instead of code 1. If it has code 1, she can still claim the exception by entering the amount into the box on TurboTax's These Situations May Lower Your Tax Bill page. Be sure to click the Continue button on the Your 1099-R Entries page or go to Other Tax Situations -> Additional Tax Payments -> Extra tax on early retirement withdrawals.
Is the distribution really from a 401(k) and the IRA/SEP/SIMPLE box is not marked on the Form 1099-R provided by the payer? The age-55 exception does not apply to distributions from an IRA (IRA/SEP/SIMPLE box marked).
