"early distribution, no known exceptions" means, besides whatever income tax may be owed when the distribution is added to your other incomes and allowed deductions and credits are subtracted, you owe a 10% early withdrawal penalty unless you claim (and eventually prove) a basis to not have to pay the penalty.
More information is available in Chapter 10 of Publication 17 from the IRS. The publication is free at www.irs.gov .
You can review the specific facts with your tax professional to see if you have any claim not to pay the penalty.
Either code could be used upon termination of employment. Code 1 is "early distribution, no known exception, while Code 2 is "early distribtuion, exception applies". Which code is used upon termination depends on whether one of the several exceptions to the 10% penalty apply in your circumstances.
Disclaimer of California Attorney. Laws differ form state to state. Although the above response is believed to be accurate, it should not be relied upon as any type of legal advice because the information provided is incomplete. It is intended to educate the reader and a more definite answer should be based on a consultation with a lawyer. No attorney client relation is formed with me without a written contract.
Good Luck starts with a strategy and a plan.
Robert J. Suhajda, MS,CPA
17721 Norwalk Blvd. #43
Artesia, CA 90701
Tax Relief Lawyer. Former financial auditor and controller. Admitted to US Tax Court, Income Tax, IRS representation, Fiduciary income tax returns, Estate and Gift tax returns, Homeowner Association Strategist.
I believe the answers from the other two attorneys are correct.
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