Distribution code question for "rider" on whole life policy

[HKB1788]

My husband sold/closed his whole life insurance policy a few years ago. He has $25k left in the rider account.. We took out the money without taxes this past fall. We have a 1099-R form where the IRA/SEP/SIMPLE box is checked with box 7 distribution code being "1" (early distribution.) As I am entering all of the info, Turbo Tax wording is  "Looks like you took out of your retirement early... etc" and there is a large sum that will be taxed. We knew we'd owe taxes, but why is this being treated as an IRA when it was an extension of a life insurance policy/annuity? 

[DavidD66]

I don't know why the IRA/Simple/SEP box was checked, nor do I know what kind of Rider your had been attached to his whole life policy - there are lots of different riders that can be added to a whole life insurance policy.  It must have been some type of annuity (which is an insurance contract).  Annuity withdrawals made before you reach age 59½ are typically subject to a 10% early withdrawal penalty tax.  If the funds in the rider were pre-tax, then 100% of it would be taxable and subject to the 10% penalty.  Annuity products in general, are taxed the same way as an IRA in many instances, so the way your distribution is being taxed is not surprising.   The best way to get an explanation about how the distribution was taxed, and why, would be to contact the insurance company.

[HKB1788]

Thank you for your response and helping me understand how these policies work,  @DavidD66