I have a client who is now totally and permanently disabled. He withdrew money from his IRA, which isn't taxable because he's deemed disabled, Charles Schwab put distribution code 1 and they said they won't change it because it can be handled on the tax return. Where/how do I do i make the withdraw non taxable?
I'm not sure why you believe that permanent and total disability renders IRA withdrawals as nontaxable. I think you're referring to the 10%-penalty for early withdrawal (which results from Code 1 on the 1099-R). To indicate the taxpayer is not subject to the 10%-penalty, use Form 5329. Scroll down and find Line C for the input blank to remove the 10%-penalty. Also, be sure to acquaint yourself with the tax code's definition of "permanent and total disability." It's defined much more strictly than most people would assume.
The IRA distribution will be taxable, but the distribution amount should qualify for the10% penalty exclusion due to a disability. Use form 5329 and it's instructions.
A distribution from a pretax retirement account will always be taxable, its the penalty for early withdrawal that can be waived in certain situations.