topic Continued annuity SEP withdrawal still being coded as 1D after age 59 1/2 in Get your taxes done using TurboTax

Continued annuity SEP withdrawal still being coded as 1D after age 59 1/2

DIY_Tax_Person — Sat, 14 Feb 2026 17:19:07 GMT

I'm 61 now. More than 10 years ago, I started a SEPP withdrawal program on my non-qualified variable annuity. What I don't understand is why the insurance company is still coding these annual withdrawals as 1D. Code 1 indicates an early distribution. In TurboTax, it appears as though I'm paying higher taxes because of this determination. Since I'm over the age of 59 1/2, shouldn't the code be 7D? Did the insurance company make a mistake?

This year, I also took out a manual withdrawal and the insurance company correctly coded it as 7D.

Should I end the SEPP withdrawals and just start taking out manual withdrawals instead in order to save on taxes? Is there a penalty for ending a SEPP withdrawl program after age 59 1/2?

Re: Continued annuity SEP withdrawal still being coded as 1D after age 59 1/2

ReneV4 — Sun, 15 Feb 2026 23:12:08 GMT

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.

Re: Continued annuity SEP withdrawal still being coded as 1D after age 59 1/2

DIY_Tax_Person — Sun, 15 Feb 2026 23:22:33 GMT

There should be NO 10% penalty because I'm 61 now. Also, I tried changing the 1 to a 7, and this indeed lowered my taxes in TurboTax. I'm on the phone with TransAmerica on Monday...

Re: Continued annuity SEP withdrawal still being coded as 1D after age 59 1/2

dmertz — Mon, 16 Feb 2026 14:49:41 GMT

"What I don't understand is why the insurance company is still coding these annual withdrawals as 1D."

That's a question for the annuity company. It doesn't make any sense that they would continue to use code 1 since the SEPP plan effectively terminated when you reached age 59½ after having already completed 5 years under the plan. They should know that. Code 1 can be used to indicate a modification of the SEPP plan even when over age 59½, but since you had met requirements for being able to terminate the SEPP plan without penalty, they should know that your additional distribution in 2025 implied termination of the SEPP plan.

With the code-1D Form 1099-R, you can claim a code 12 exception on Form 5329 line 2, "Distributions incorrectly indicated as early distributions by code 1, J, or S in box 7 of Form 1099-R."