Form 1099-R Box 7 Distribution Codes

Box 7 Distribution Codes Explanations
1 — Early distribution, no known exception • If this amount was rolled over within 60 days of the withdrawal and—if the distribution was from an IRA--no prior rollover was made in the same 12-month period, enter the amount rolled over in Line 1 of the Exclusion Worksheet below the 1099-R screen. Trustee to trustee transfer isn’t considered a prior rollover. If more than one rollover from an IRA in the 12-month period, the return is out of scope.

• If this wasn’t rolled over, a 10% additional tax will be applied unless the taxpayer qualifies for an exception. See Tab H for a list of exceptions. If the taxpayer qualifies for an exception, go to Form 5329, enter the amount that qualifies for an exception and select the reason for the exception from the dropdown list.

2 — Early distribution, exception applies Code 2 applies if the taxpayer is under 59-½ but the payer knows that an exception to the additional tax applies. If the IRA/SEP/SIMPLE box ISN’T checked, no further action needed. If the IRA/SEP/SIMPLE box IS checked, additional reporting may be required on Form 8606, and the return is out of scope.
3 — Disability. Code 3 is for a disability pension

• If the taxpayer is under the minimum retirement age for the company he retired from, then check the box under Rollover or Disability that says, “Check here to report on Line 7.” This will put this disability income on Line 7 of Form 1040 instead of Line 16. It will also include the amount in earned income for calculation of the earned income credit, the dependent care credit and the additional child tax credit.

• If the taxpayer has reached the minimum retirement age, no further action is needed.

4 — Death Code 4 is for a survivor’s benefit or an inherited IRA. If it’s a pension, the original retiree has died, and the survivor is receiving his or her share of the pension. If the original pensioner was using the Simplified Method, continue to use it for the survivor. If it’s an inherited IRA and the original owner had a basis, the survivor takes over that basis.
5 — Prohibited transaction This code is out of scope.
6 — Tax-free Section 1035 exchange In scope.
7 — Normal distribution Code 7 is for normal distributions. It may occur in several different situations:

• If the amounts in Box 1 and 2a are the same, and Box 2b isn’t checked, the pension is fully taxable.

• If the taxpayer makes a rollover from one IRA to another and holds the money less than 60 days, enter the amount rolled over on the Exclusion Worksheet, line 1. This will check the “rollover” box at Line 15 of Form 1040. Link out from there and enter a description of the rollover.

• If the Box 2b is checked and there is an amount in Box 9b, complete the Simplified Method. Be sure to use the taxpayer’s age at the time of retirement—not current age.

• If there is an amount in Box 2 that is different than Box 1, no further action is needed.

• If there is no amount (or zero) in Box 2a, check to see if there is an amount in Box 5. If this is the same amount as Box 1, the distribution is the taxpayer’s own money coming back. Enter the Box 5 amount on line 5 of the Exclusion Worksheet. None of the distribution will be taxed.

• If any portion of this distribution was sent directly from the trustee to a charity, and the taxpayer is over 70 1/2 years old, enter the net taxable amount in box 2a (which may be zero). Hit Continue and at the IRA/Pensions Distributions page, select Nontaxable Distributions and check the box to mark that there is a QCD. No charitable deduction may be taken for the donation.

8 — Excess contributions This code is out of scope.
9 — Cost of current life insurance This code is out of scope.
A — May be eligible for 10-year tax option This code is out of scope.
B — Designated Roth account distribution Code B is for a distribution from a designated Roth account. This code is in scope only if the taxable amount has been determined.
D — Annuity payments from nonqualified annuities Code D is used for a distribution from a private annuity in conjunction with the regular code. The distribution is subject to the net investment income tax. If the taxpayer has AGI over a threshold amount ($200,000 for a single taxpayer or HoH, $250,000 MFJ or QW, $125,000 MFS), then this code means the return is out of scope. If the AGI is less than the threshold amount the return is in scope and no further action is needed.
E — Distributions under Employee Plans Compliance Resolution System (EPCRS) This code is out of scope.
F — Charitable gift annuity Code F is used for the annuity payments from a charitable gift annuity. The difference between the distribution in Box 1 and the capital gain shown in Box 3 will appear on Line 15 of the 1040. Schedule D must be completed to report the capital gain. Describe it as “From 1099-R”. The gain should be the amount in Box 3, and the gain is long term.
G — Direct rollover of distribution and direct payment Code G is for a direct rollover from a qualified plan to an eligible retirement plan. If box 2a, taxable amount, is zero or blank, it won’t be taxed. If there is an amount in box 2a, the direct rollover is fully or partially taxable. No further action is needed.
H — Direct rollover of a designated Roth account distribution to a Roth IRA Code H is for a direct rollover of a distribution from a designated Roth account to a Roth IRA. It won’t be taxed. No further action is needed. Box 2a should be blank. Place check mark in box IRA/SEP/SIMPLE.
J — Early distribution from a Roth IRA In scope if distribution is not taxable and if first-time homeowner exception does not apply. Otherwise, this code is out of scope.
K — Distribution of IRA assets not having a readily available FMV This code is out of scope.
L — Loans treated as deemed distributions Code L is for loans treated as deemed distributions. This code could possibly be combined with codes 1, 4, or B. For more information on how it is treated see the codes on this chart.
N — Recharacterized IRA contribution This code is out of scope.
P — Excess contributions plus earnings/excess deferrals This code is out of scope.
Q — Qualified distribution from a Roth IRA This distribution isn’t taxable. TaxSlayer® enters the distribution amount on Form 1040 Line 15a but not 15b. No further action is needed.
R — Recharacterized IRA contribution This code is out of scope.
S — Early distribution from a SIMPLE IRA in the first 2 years, no known exception. A 25% additional tax will be applied unless the taxpayer qualifies for an exception. See Tab H for a list of exceptions. If the taxpayer qualifies for an exception, go to Form 5329 and enter the amount of the distribution not subject to the additional tax and the code for the exception and the amount that qualifies for it.
T — Roth IRA distribution, exception applies In scope if distribution is not taxable and if first-time homeowner exception does not apply. Otherwise, this code is out of scope.
U — Dividends distributed from an ESOP In scope.
W — Charges or payments for LTC contracts In scope.