Age 55 penalty tax exception

This is the 72(t)(2)(A)(v) exception. Any reason this wouldn't apply to a loan offset distribution (not a prior deemed distribution) upon termination of employment? I don't see any basis for saying this wouldn't apply, but we have a State tax department giving someone a hard time, so I thought I'd see if I'm missing something...

Thanks.

Why wouldn't the exception apply?

A loan offset is simply part of his distribution, a loan default I think is different.

Did you use code "2" on the 1099-R or "2L"

If you used "2L" I think that might be causing the issue as I don't think code 2 is allowable with code L so it might be an auto kick but I'd have to go back and check the instructions of Form 1099-R.

Thanks Lou. I don't even know what code was used on the 1099 - haven't seen it. Question was from an advisor but not on one of our plans, so I was looking at it in a general sense. I will suggest they check the 1099 codes to see if it was completed correctly.

Happy Friday!