There are exceptions to the 10% tax penalty for early distributions:

• Death or total and permanent disability
• Series of substantially equal periodic payments based on life expectancy
• Qualified first-time homebuyer distributions up to $10,000
• Qualified higher education expenses
• Certain medical insurance premiums paid while unemployed
• Unreimbursed medical expenses that are more than a certain amount of your adjusted gross income
• IRS levy
• Certain distributions to qualified military reservists called to active duty

Once you enter the distribution information from your 1099-R form, we'll help you check for any exceptions that could reduce the tax.

A code 2 *is* an exemption.  There is no penalty with a code 2.

The payer uses a code 2 under these circumstances:

Use Code 2 only if the participant has not reached age 59½ and you know the distribution is the following.

  -  A Roth IRA conversion (an IRA converted to a Roth IRA).

   - A distribution made from a qualified retirement plan or IRA because of an IRS levy under section 6331.

   - A governmental section 457(b) plan distribution that is not subject to the
    additional 10% tax. But see Governmental section 457(b) plans, earlier, for information on distributions that may be subject to the 10% additional tax.

   - A distribution from a qualified retirement plan after separation from service in or after the year the participant has reached age 55.

  -  A distribution from a governmental defined benefit plan to a public safety employee (as defined in section 72(t)(10)(B)) after separation from service, in or after the year the employee has reached age 50.

 -   A distribution that is part of a series of substantially equal periodic payments as described in section 72(q), (t), (u), or (v).

   - A distribution that is a permissible withdrawal under an eligible automatic contribution arrangement (EACA).

   - Any other distribution subject to an exception under section 72(q), (t), (u), or (v) that is not required to be reported using Code 1, 3, or 4.

does  a hardship withdrawl qualify for a code 2- early withdrawl (except Roth)?

No.  A "hardship" is a regular distribution subject to tax and early distribution penalty.     "Hardship" only allows you to even have a distribution prior to retirement.    Some employer plans do not allow hardship distributions at all.