Contractor terminated handrail on steps to 2nd last step from bottom and
placed the railing about 4" in from the outside edge. Shouldnt it go to
the bottom step and with 1" from the edge? Anyone know what the code is
for this?

If I remember correctly, railing is only required if the steps are higher
than 24" off the ground (about three steps). So, I don't see an issue with
your railing stopping at the second step. In fact, it is quite common for
indoor staircases to have a full step past the end of the railing. It could
also strengthen the railing post by giving more leverage at the bottom end,
but that would depend on how it was constructed.

Being 4" in from the outside edge is a bit unusual, but not a big deal.
Depending on how the post is attached to the deck structure (i.e. bolted to
the inside of a doubled joist), it could make the railing much sturder than
if it were mounted to the outside.

I built a set of stairs for my in-laws recently, and the railing posts are
sandwiched between two joists for strength. With siding and a trim board on
the outside, there's probably around 2-1/2" from the post to the outside
edge. The decking overhangs about 1 inch, for maybe a total of 3-1/2" from
post to the outmost edge.

Anthony