in-kind/in-service distribution under 59.5

sometimes....we make it so clear to communicate with us at all times about distributions (this has to do with a s/d brokerage type account, not with a recordkeeper), and yet that doesn't happen...

okay enough complaining...

Owner of small plan took an in-service (not hardship) distribution of an in-kind asset. Unfortunately, owner is under 59.5 and this asset is allocated among all money types, including 401k, which is not allowable under 59.5 per my understanding.

First off, so this 401k portion really was not able to be distributed, but for now say it was.  Because new holder of this non-ordinary asset cannot separate this out between two accounts (taxable account vs non-taxable rollover IRA), the brokerage has recommended rolling it back into the plan. It's after 60 days, so I feel like that's it, it was a distribution, which was partially not allowed. They still want to roll it over and treat it as a correction and correct the 1099-R's.

I don't know, trying to figure out a correction.

If it was not a permitted distribution, what is so problematic about looking at reversing it as a correction, or the greater part of the correction?