If my wife retired a brokerage retirement plan at age 591/2 with a small gain would she have a penalty or need to pay tax on the gain?

[cocare]

The brokerage account was an exempt rollover account from her former employment.  She had never taken a withdrawal over a 10 year period.

[DexterS · Accepted solution]

If your wife withdrew the money after she turned 59 1/2 there is no penalty.

Retirement plans can be a mix of taxable and non-taxable money.

If the plan was from a former employer it is likely that your wife was not taxed on the contributions into the plan.  The contributions were put directly into her retirement account without her paying taxes on the money.

If that's the case everything she withdraws is taxed as ordinary income, because no tax was ever paid on the contributions.

If your wife made after tax contributions to the account then a portion of the withdrawal is not taxable because she had already paid taxes on some of her contribution.

The taxable portion of a retirement plan is always ordinary income.  You're not just taxed on the gain.

Look at the 1099-R, Box 2a (Taxable amount).  That should tell you what the custodian thinks is taxable.  If you disagree, be prepared to defend you position if the IRS challenges you.

If Box 2b (Taxable amount not determined) is checked you'll have to look to your own records to come up with a nontaxable amount.

The most likely scenario is that it's all taxable.