Plan termination - loan offsets - participant age 55 to 59 1/2 - 1099-R form

I believe I'm clear but need reinforcement:

Plan termination, qualified plan loan offsets, some participants over age 55 but under 59 1/2 - the IRS Code for the 1099-R forms would be a 2M, is that correct?

I know those under 55 get a code 1M and those over 59 1/2 get the 7M code.

Edited to add:  I should clarify that these participants are also separated from service as the company has closed.

sounds right to me, no 10% penalty.

ONLY IF separation occurred after age 55 does the code 2 exception apply, one cannot age into the age 55 exception. This was the old early retirement provision exception in the code that then got modified to treat people the same whether or not their plans had early retirement provisions.

Isn't it "in the year you turn 55", rather?  Similar to catchups before your 50th birthday.....

Ah, indeed, my Sal book says:  IRS Notice 87-13, A-20

Thanks all for the responses.  The participants in question were already over 55 when the Company closed, however aren't yet 59 1/2. 

On 12/6/2022 at 4:10 PM, Bri said:

Isn't it "in the year you turn 55", rather?

good catch, thanks

Found this in the IRS website:

Exceptions to the 10% Additional Tax

Distributions that aren't taxable, such as distributions that you roll over to another qualified retirement plan, aren't subject to this 10% additional tax. For more information on rollovers, refer to Topic No. 413 and visit Do I Need to Report the Transfer or Rollover of an IRA or Retirement Plan on My Tax Return?

There are certain exceptions to this 10% additional tax. The exceptions below apply to distributions from a qualified plan other than an IRA. For a complete list, look at the Appendix for Notice 2020-62PDF.

• Distributions made to your beneficiary or estate on or after your death.
• Distributions made because you're totally and permanently disabled.
• Distributions made as part of a series of substantially equal periodic payments over your life expectancy or the life expectancies of you and your designated beneficiary. If these distributions are from a qualified plan other than an IRA, you must separate from service with this employer before the payments begin for this exception to apply.
• Distributions to the extent you have deductible medical expenses that exceed 7.5% of your adjusted gross income whether or not you itemize your deductions for the year. For more information on medical expenses, refer to Topic No. 502.
• Distributions made due to an IRS levy of the plan under section 6331.
• Distributions that are qualified reservist distributions. Generally, these are distributions made to individuals called to active duty for at least 180 days after September 11, 2001.
• Distributions that are excepted from the additional income tax by federal legislation relating to certain emergencies and disasters.
• Distributions up to $5,000 made to you from a defined contribution plan or an IRA if the distribution is a qualified birth or adoption distribution.
• Distributions made to you after you separated from service with your employer if the separation occurred in or after the year you reached age 55, or distributions made from a qualified governmental benefit plan, as defined in section 414(d) if you were a qualified public safety employee (federal state or local government) who separated from service in or after the year you reached age 50.
• Distributions made to an alternate payee under a qualified domestic relations order.
• Distributions of dividends from employee stock ownership plans.

Refer to Topic No. 557 for information on the tax on early distributions from IRAs. For more information, refer to Publication 575, Pension and Annuity Income and Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs).