IRS Form 1099-R Distribution Codes Explained

If you took money out of a retirement plan this year, you may find Form 1099‑R sitting in your mailbox. This form tells both you and the IRS important details about your withdrawal, including whether the funds are taxable or may carry a penalty. 

The key piece to focus on is Box 7, which holds a distribution code that reveals the type of withdrawal and how it should be reported. In the sections that follow, you will learn what these codes mean, why they matter for your tax return and retirement strategy, and what to do if your code looks unfamiliar.

📌 Also read: Important Forms for Solo 401k Owners

What Is IRS Form 1099‑R and Why It Matters

If you received a payout from a retirement account, such as an IRA, pension, or 401k, your financial institution will typically issue Form 1099-R.

The form is used to report any distribution of $10 or more from plans such as:

✅ Employer‑sponsored retirement plans (401k, 403b, or 457b)
✅ Traditional or Roth IRAs
✅ Annuities or pensions
✅ Insurance or survivor income benefit plans
✅ Charitable gift annuities or similar contracts

Each copy of Form 1099‑R shows the gross distribution, taxable amount, and any federal tax withheld, so the IRS can match what you report on your individual tax return. In most cases, you will receive the form by the end of January following the distribution year.

Why Box 7 Is Especially Important

Every Form 1099‑R includes a field labeled Box 7, which contains a short distribution code — a letter or number that explains why the distribution occurred. This small code carries big consequences: it determines whether your withdrawal is taxable, subject to a 10% early‑withdrawal penalty, or qualifies for an exception.

For example, Code 1 generally means an early distribution before age 59½ with no known exception. Code 7 identifies a normal distribution after age 59½.

📝 Note: These codes help taxpayers confirm how their withdrawals are treated for tax purposes. If you think the code does not match your situation, it is best to verify it with your plan provider or preparer before filing.

Form 1099‑R ensures that both you and the IRS have a consistent record of how retirement funds moved during the year. Understanding it helps prevent filing errors and potential penalties.

List of 1099-R Box 7 Distribution Codes

Below is a list of the distribution codes used in Box 7 of Form 1099‑R. 

Each code represents a specific type of retirement account distribution, which may affect whether the amount is taxable, subject to a penalty, or qualifies for an exception. Use this table to identify the meaning behind the code printed on your form.

Box 7 Code	Description	Used with code (if applicable)
1	Early distribution, no known exception	8, B, D, K, L, M, or P
2	Early distribution, exception applies	8, B, D, K, L, M, or P
3	Disability	D
4	Death	8, A, B, D, G, H, K, L, M, P, or Y**
5	Prohibited transaction	None
6	Section 1035 exchange	W
7	Normal distribution	A, B, D, K, L, M, or Y**
8	Excess contributions plus earnings/excess deferrals (and/or earnings) taxable in 2025	1, 2, 4, B, J, or K
9	Cost of current life insurance protection	None
A	May be eligible for 10-year tax option	4 or 7
B	Designated Roth account distribution	1, 2, 4, 7, 8, G, L, M, P, or U
C	Reportable death benefits under section 6050Y	D
D	Annuity payments from nonqualified annuities and distributions from life insurance contracts that may be subject to tax under section 1411	1, 2, 3, 4, 7, or C
E	Distributions under Employee Plans Compliance Resolution System (EPCRS)	None
F	Charitable gift annuity	None
G	Direct rollover and direct payment	4, B, or K
H	Direct rollover of a designated Roth account distribution to a Roth IRA	4
J	Early distribution from a Roth IRA, no known exception	8, P, or S
K	Distribution of traditional IRA assets not having a readily available FMV	1, 2, 4, 7, 8, G, or Y**
L	Loans treated as deemed distributions under section 72(p)	1, 2, 4, 7, or B
M	Qualified plan loan offset	1, 2, 4, 7, or B
N	Recharacterized IRA contribution made for 2025	None
P	Excess contributions plus earnings/excessdeferrals taxable in 2024 or a previous year	1, 2, 4, B, or J
Q	Qualified distribution from a Roth IRA	None
R	Recharacterized IRA contribution made for 2024 or a previous year	None
S	Early distribution from a SIMPLE IRA in first 2 years, no known exception	J
T	Roth IRA distribution, exception applies	None
U	Dividends distributed from an ESOP under section 404(k)	B
W	Charges or payments for purchasing qualified long-term care insurance contracts under combined arrangements	6
Y	Qualified charitable distribution (QCD) claimed under section 408(d)(8)	4, 7, or K

📌 Source: 2025 Instructions for Forms 1099-R and 5498 | IRS

What Each 1099-R Box 7 Code Mean

Code 1 – Early Distribution, No Known Exception

Use this code when the individual has not reached age 59½, and you do not know if any of the exceptions under Codes 2, 3 or 4 apply.

Even if the distribution is made for medical expenses, health insurance premiums, qualified higher education expenses, a first‑time home purchase, or a qualified reservist distribution, Code 1 still applies in many cases.

Also use Code 1 if a series of substantially equal periodic payments is modified before the end of the 5‑year period that began with the first payment, even if the person is age 59½ or older. 

Code 2 – Early Distribution, Exception Applies

This code is used when the participant has not yet reached age 59½, but the withdrawal meets one of the exceptions that waive the 10% early‑withdrawal penalty.

These situations are relatively specific and must be known to the plan provider at the time of reporting.

When Code 2 applies:

📝 Note: Code 2 shows that an early withdrawal was made with a valid exception. The distribution may still be taxable as income but will typically not trigger the 10% penalty.

Code 3 – Disability

Code 3 indicates that the distribution was made because the participant became disabled under IRS rules. Proof of disability is not required by the IRS but is strongly recommended for accurate reporting.

If no documentation is provided, the plan provider will usually issue the form using Code 1, which assumes no known exception.

📝 Note: Even if Code 1 is used in error, an individual can still claim the disability exception by filing Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, with their tax return.

Code 4 – Death

This code identifies distributions made after a participant’s death, regardless of age. It is used for:

✅ Payments to a beneficiary, estate, or trust; and
✅ Employer death‑benefit payments made outside of a pension, profit‑sharing, or retirement plan.

📝 Note: Code 4 tells the IRS that the payment is being made to a beneficiary due to death, not to the original account holder. These payments are often taxable to the beneficiary based on plan type.

Code 5 – Prohibited Transaction

Code 5 is issued when an IRA engages in a prohibited transaction, such as using the account for personal benefit or investing in disallowed property. Once a prohibited transaction occurs, the account loses its IRA status as of the first day of that year.

📝 Note: A Code 5 distribution can trigger significant tax consequences because the entire IRA balance may be treated as taxable income.

Code 6 – Tax‑Free Exchange (Section 1035)

Use Code 6 to indicate the tax-free exchange of life insurance, annuity, long-term care insurance, or endowment contracts under section 1035.

Code 7 – Normal Distribution

Code 7 is the most common entry for retirees. It applies when the account owner has reached age 59½ or older, meaning the distribution qualifies as a normal withdrawal.

Typical uses for Code 7:

📝 Note: Use Code 7 only when no other code applies. Do not use it for non‑qualified Roth IRA distributions.

Code 8 – Corrective Distribution for Excess Contributions

Use Code 8 when the account holder receives a distribution from an IRA under Section 408(d)(4) to correct an excess contribution made during the same tax year. This typically includes both the excess and any earnings tied to it.

You should also use Code 8 when:

If the excess contribution relates to a prior year, the correct code is usually Code P instead. See Corrective Distributions in the IRS instructions, and IRA Revocation or Account Closure, in the IRS instructions for Form 1099-R, for more information.

Code 9 – Cost of Current Life Insurance Protection

Use Code 9 if a retirement account is used to pay premiums for current life or other insurance protection, and those premiums are not subject to the 10% early withdrawal penalty. This typically applies to certain insurance arrangements within employer plans or annuities.

Code A – May Qualify for 10-Year Averaging

This code is for participants born before January 2, 1936 (or their beneficiaries) who may qualify to use the 10-year averaging method for computing taxes on lump-sum distributions. This method is filed using Form 4972.

📝 Note: The plan provider doesn’t decide whether the recipient qualifies—Code A is applied based on eligibility for potential use. The taxpayer must decide whether to claim it.

Code B – Designated Roth Account Distribution

Use Code B when reporting a distribution from a designated Roth account in a 401k or 403b plan.

❌ Do not use Code B for:

📝 Reminder: Roth distributions are not automatically tax-free. Their treatment depends on whether the distribution is qualified.

Code C – Reportable Death Benefits

Code C indicates a distribution that includes reportable death benefits, often tied to insurance contracts. These may be subject to special reporting rules under Section 6050Y if the contract was part of a reportable policy sale.

Code D – Nonqualified Annuity or Contract

Use Code D for annuity payments or distributions from nonqualified contracts, such as life insurance contracts or annuities not governed by 401a, 403b, 408, 408A, or 457b.

Code E – EPCRS Correction Distribution

This code is used only for distributions made under the Employee Plans Compliance Resolution System (EPCRS) to correct plan violations under IRS-approved procedures.

📝 Note: EPCRS corrections may occur when a plan fails to meet operational or eligibility rules and must return excess amounts.

Code F – Charitable Gift Annuity

Use Code F to report distributions from charitable gift annuities. These arrangements often involve donating assets in exchange for lifetime income. This code tracks the annuity payouts as they occur.

Code G – Direct Rollover to Another Plan

Use Code G for a direct rollover from a qualified plan, 403b, or 457b governmental plan to another eligible retirement plan or IRA.

Also used when:

❌ Do not use for designated Roth account rollovers to Roth IRAs. Use Code H instead.

Code H – Roth Direct Rollover to Roth IRA

This code is specific to designated Roth account rollovers going to a Roth IRA. It ensures the IRS tracks this movement separately from traditional funds.

Code J – Early Roth IRA Distribution, No Known Exception

Code J applies when a Roth IRA distribution is made before age 59½ and is not a qualified distribution.

📝 Note: Even though contributions may be withdrawn tax-free, any earnings in the distribution may be subject to taxes and penalties.

Code K – Distribution of Hard-to-Value Assets

Use Code K when an IRA distribution includes assets without a readily available fair market value (FMV).

Examples include:

📝 Note: The IRS may require additional scrutiny when Code K appears. Proper valuation should be documented.

Code L – Loans Treated as Deemed Distributions

Code L identifies deemed distributions related to retirement plan loans that violate IRS rules, such as missing repayments or failing loan documentation.

📝 Note: This is not used for loan offsets due to termination or severance. Use Code M in those cases.

Code M – Qualified Plan Loan Offset

Use Code M for a qualified plan loan offset (QPLO), where the participant leaves the job or the plan terminates, and an unpaid loan is treated as a distribution.

📝 Reminder: QPLOs may be eligible for rollover under special timing rules if the offset is reported correctly.

Code N – Recharacterization of 2025 IRA Contribution

Code N reflects a trustee-to-trustee recharacterization of a 2025 IRA contribution to a different type of IRA (e.g., Roth to Traditional or vice versa).

Code P – Prior-Year Excess Contribution Correction

Code P applies to the removal of excess contributions made in a prior year. It’s often paired with Code 8 when the year of correction is different from the year of contribution.

📝 Note: Earnings are taxable in the year the excess was contributed, not the year it was withdrawn.

Code Q – Qualified Roth IRA Distribution

Code Q is used when a Roth IRA distribution is qualified, meaning:

This code confirms that the full distribution is tax-free and not subject to penalties.

Code R – Recharacterization of Prior-Year IRA Contribution

Code R reflects a trustee-to-trustee recharacterization of an IRA contribution made for 2024 or earlier, switching from one type of IRA to another.

Code S – SIMPLE IRA Early Distribution in First 2 Years

This code is used when a SIMPLE IRA distribution occurs within the first 2 years of participation and the account holder is under age 59½.

📝 Note: These withdrawals can face a 25% penalty instead of 10%, unless another exception applies.

Code T – Roth IRA Distribution, Exception Applies (But Holding Period Unknown)

Use Code T for a distribution from a Roth IRA if you do not know if the 5-year holding period has been met but:

If any other code (such as 8 or P) applies, use Code J.

Code U – Dividends from an ESOP

Code U reports dividends distributed from an employee stock ownership plan (ESOP) under Section 404(k). These dividends are not rollover-eligible.

📝 Note: If the corporation pays dividends directly to the participant, they are reported on Form 1099-DIV, not 1099-R.

Code W – Long-Term Care Insurance Charges

Use Code W for amounts used to pay qualified long-term care insurance premiums directly from a life insurance or annuity contract, under Section 72(e)(11).

📝 Reminder: These payments are generally excluded from income if they meet IRS limits.

Code Y – Qualified Charitable Distribution (QCD)

Use Code Y to report a Qualified Charitable Distribution made directly from an IRA to an eligible charity. This is recognized under IRC Section 408(d)(8) and is generally excluded from taxable income, even if the individual is age 70½ or older.

Code Y may appear alongside:

📝 Note: The distribution must be made directly to the charity. If it goes through the account holder, it may lose QCD status and become taxable.

📌 For more details, see IRS Publication 590-B – Distributions from IRAs.

What to Do If You See an Unfamiliar Code

Box 7 on Form 1099‑R might look like a small field, but the code inside it carries important tax consequences. If you see a letter or number you don’t recognize or if the code doesn’t seem to match your situation, it’s worth taking a closer look.

A mismatch in Box 7 could affect how your retirement withdrawal is taxed. In some cases, it may even cause an early withdrawal penalty to be applied when it shouldn’t be.

Here’s what to do if you’re unsure:

✅ Double-check your age at the time of distribution. Some codes apply only if you were under age 59½, while others assume you’ve reached that age. This is often the first test used to determine if the withdrawal might be considered “early.”

✅ Review the reason for the distribution. Was it due to disability, a Roth conversion, a required minimum distribution, or a post-retirement withdrawal? The reason affects whether the distribution qualifies for an exception under IRS rules.

✅ Compare the code to your plan paperwork. Look at the plan’s distribution statement or confirmation letter. It may describe why the funds were released and help you match it with the correct IRS code.

✅ Ask your provider or preparer for clarification. If you believe the code is wrong or doesn’t reflect your circumstances, contact your financial institution or tax preparer before filing your return. It’s easier to fix now than to amend it later.

📝 Note: If you qualify for an exception, such as disability, a first-time home purchase, or unreimbursed medical expenses, but your 1099‑R shows Code 1 (early distribution, no known exception), you may still be able to fix it on your tax return.

To do this, file Form 5329 (Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts). This form allows you to claim the proper exception and avoid the 10% early withdrawal penalty, even if the form from your provider didn’t reflect it.

Key Takeaways

Box 7 might not stand out at first glance. But the code it contains helps determine how your retirement distribution is taxed and whether any extra steps are needed.

If you’re wrapping up your return and something on your form doesn’t quite add up, it’s worth taking a moment to look into it. You don’t need to navigate it alone. Many people check in with a tax professional, especially when exceptions, rollovers, or recharacterizations are involved.

Keeping your documents organized and reviewing your forms carefully each year can make tax season a little easier and help you avoid surprises down the road. 

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