Correct Distribution Code for Loan Offset Due to Disability

If the participant has terminated service with the company and has a disability, what would be the correct code for the loan offset? The participant is under 59 1/2.

Thank you.

The Plan could use code 2, which eliminates the 10% premature penalty however if not 100% sure of disability status then the Plan should use code 1.  If truly disabled, the participant then addresses that on his/her personal tax return with form 5329.  My husband is totally disabled and one of his IRA withdrawals last year was coded with a "1" in error.  Rather than go through the hassle of having the 1099-R reissued, I simply filed the 5329 form with our personal return and we did not have to pay the 10% excise tax.

If the loan offset was a qualified loan offset (due to termination of employment) code M should be used in addition to code 1 or 2 as applicable.