I agree it should have been a 2. She terminated in the calendar year she turned age 55 and received the distribution after termination of employment. Notice 87-13, Q&A 20 has a more detailed description of the rule.
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Q-20: What additional tax on early distributions from qualified retirement plans applies under section 72(t) (as added by TRA'86)?
A-20: Section 72(t) (as added by TRA'86) applies an additional tax equal to 10 percent of the portion of any "early distribution" from a qualified retirement plan (as defined in section 4974(c) of the Code) that is includible in the taxpayer's gross income. A distribution (including deemed distributions under section 72(p)) is treated as an "early distribution" unless it is described in section 72(t)(2)(A) (taking into account sections 72(t)(3) & (4)). A distribution to an employee from a qualified plan will be treated as within section 72(t)(2)(A)(v) if (i) it is made after the employee has separated from service for the employer maintaining the plan and (ii) such separation from service occurred during or after the calendar year in which the employee attained age 55.
A distribution that is an "early distribution" will not be subject to the additional tax to the extent provided under section 72(t)(2)(B) (relating to deductible medical expenses under section 213), section 72(t)(2)(C) (relating to certain distributions from employee stock ownership plans), or section 72(t)(2)(D) (relating to distributions pursuant to qualified domestic relations orders). The determination of whether the additional tax under section 72(t) applies to a distribution to be made without regard to whether the distribution is treated as a mandatory distribution for purposes of section 411(a)(11) or section 417(e).
The payor (or, if applicable, plan administrator) is not liable under section 3405 to withhold any amount on account of the additional income tax imposed under section 72(t). However, the taxpayer may have estimated tax liability with respect to such additional income tax.