Background: My wife took an early distribution from her 403(B)(7) retirement account that according to IRS Section 72(t)(2)(A)(v), 72(t)(10) is provides an exception for the 10% penalty for early withdrawal: "Separation from Service - the employee separates from service during or after the year the employee reaches age 55 (age 50 for public safety employees of a state, or political subdivision of a state, in a governmental defined benefit plan)". She was 56 years of age at time of separation and made the withdrawal at 58 years of age. Question: Box 7 of the 1099-R form has a '1-Early Distribution, no known exception'. Should it be '2-Early Distribution, exception applies' since there should be no penalty applied? Thank you for any guidance!
