If you were 59 1/2 when the money was taken out, the code would be 7 and the funds would be taxable, but no early withdrawal penalty would apply.
There is not a specific distribution code on a Form 1099-R for medical expenses. The code is likely 1 for early withdrawal or 2, for early withdrawal, with exception. If Code 2 was used, you will not be subject to the 10% early withdrawal penalty and no further questions will be asked.
If it was Coded as 1 in Box 7, there will be follow-up questions where you can enter your medical expenses. However, you can only exclude from the 10% penalty medical expenses over 10% of your adjusted gross income.
Since these medical expenses were taken out of taxed funds, you can include these expenses as medical expenses which may allow you to itemize your deductions depending on the amount of expenses and your other itemized deductions.
The instructions below will help you
enter your Medical Expenses.
If you are using TurboTax Online,
except Home & Business:
1. Click on
Federal Taxes, then Deductions & Credits
2. Check your list for Medical Expenses.
If you don't see it listed, click on Check for other tax breaks and
then Jump to full list.
3. Scroll down to Medical and click on Show more
4. Start/Edit next to Medical Expenses
If you are using TurboTax Desktop or
TurboTax Online - Home & Business Version:
1. Click on
Federal Taxes (Personal, if using Home & Business)
2. Click on
Deductions & Credits
3. Select I'll
choose what I work on
4. Scroll down
to Medical Expenses under the Medical category, click on Start/Update
