“they put me in a 25% tax bracket and they charged me 10% penalty for early distribution. on 1099r form they put code 1 in question 7. they should have put code 4 for death in question 7. what should i do?”---> As you take money out of the IRA account before you reach age 59 1/2, the IRS considers these premature distributions as taxable income. In addition to owing any tax that might be due on the money, 25% as you said, both federal and state( or local taxes, if applicable)),you'll face a 10 percent penalty charge on the amount. O, they put code 1 in question 7, NOT code 4. IRA owners need to know thah they can be hit hard with penalty fees if they withdraw money early.However, money can be withdrawn without penalty in the event the IRA holder becomes permanently disabled; Withdrawals are used to pay non-reimbursed medical expenses; Withdrawals up to $10,000, as far as I know, used to help pay for first-time home purchase, or Money is used to pay back taxes to the IRS after a levy has been placed against the IRA or etc.