Early Distribution Penalty?

[Tax Prep by Deb]

I have a client who when I first met had been permantely and totally disabled two years before. Prior to my working with him a tax preparer didn't file the 5329 and request the exception for permantly and totally disabled. I ammended, client was extremely happy.

Last year he re-financed his home and took equity out and was talked into investing it into an annuity. Before he turned 59 1/2 he took a $3,000.00 withdrawl and the 1099R reflects distribution code 1.

My question is would the exception still apply? He's still total and permantly disabled, however my gut says he should have known better, and that the exception wouldn't apply because the annuity was set up after the disability.

Anybody have any thoughts?

Deb!