I am 58 years old and have been on social security disability for 2 years. I withdrew some money from my investments and the bank coded the 1099 as an early withdrawal instead of disability withdrawal. I took my taxes to have them done and I am being charged 10% for early withdrawal. I understood that since I am disabled, the 1099 should have been coded with a 3 for disability. I went to the bank with my social security letter of disability so they would change the coding... they refused. Am I right that I can withdraw $$ from my investments and I am excempt from the penalty?

You are exempt from the 10% penalty for early distribution from your 401(K) and/or IRA if you are "totally and permanently disabled," which is defined to mean that you "cannot engage in any substantial gainful activity because of a physical or mental condition, and a physician determines that the condition has lasted or can be expected to last at least a year or can lead to death." If the 1099-R shows the withdrawal as an early distribution, you should attach form 5329 to your tax return, and indicate reason code 3. You should also attach whatever documentation you may have that shows your disabled status - for example a letter from your physician.

One other thought - if this withdrawal was from a 401(k) from your last employer, and you left service at age 55 or later, then you are exempt from the penalty - unfortunately this rule does not apply to IRAs.

The thing you left out here is the key, you simply refer to investments but do not define what they are. The fact that you refer to "the bank" leads me to suspect that these were CDs. You need to read the contract on those investments. While retirement investments do have a disability waiver for early withdrawals CDs may not. Did the bank give you any explanation of their refusal to adjust the 1099?