If Box 7 of your Form 1099-R shows a 4, the payer is telling the IRS the money came out of a retirement account, pension, or annuity because the original owner died and you received it as a beneficiary. That single character does important work: it signals that the 10% early withdrawal penalty does not apply, no matter how old you are. Whether the distribution is taxable, and how much, is a separate question that depends on the type of account the money came from. The 1099-R distribution Code 4 handles the “why,” not the “how much.”
What Code 4 Tells the IRS
Payers use Code 4 any time they send money from a retirement account, pension, annuity, or insurance contract to someone other than the original owner because that owner has died.1Internal Revenue Service. Instructions for Forms 1099-R and 5498 (2025) The code applies regardless of the deceased person’s age and covers payments to individual beneficiaries, estates, and trusts alike. It also covers employer-paid death benefits that fall outside a formal pension plan.
The penalty exemption is the most immediate practical effect. Distributions from retirement accounts before age 59½ normally trigger a 10% additional tax, and death is one of the listed exceptions.2Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions Because the code itself tells the IRS this is a death distribution, you do not need to file Form 5329 to claim the exception.
You may see Code 4 paired with a second letter. The two common combinations are 4G, a death distribution directly rolled over to another eligible retirement plan or IRA, and 4H, a direct rollover from a designated Roth account to a Roth IRA.3Internal Revenue Service. 2025 Instructions for Forms 1099-R and 5498 A direct rollover with G or H is generally not taxable in the year you receive it.
How Much of It Is Taxable
Code 4 does not determine the taxable amount. Box 1 shows the gross distribution, and Box 2a shows the taxable portion.1Internal Revenue Service. Instructions for Forms 1099-R and 5498 (2025) What goes into Box 2a depends on the account.
Traditional IRAs, 401(k)s, and Other Pre-Tax Plans
Distributions from inherited Traditional IRAs, 401(k)s, 403(b)s, and similar pre-tax plans are taxed as ordinary income. The original owner got a deduction going in, so the beneficiary pays going out. Box 2a usually matches Box 1 because the entire balance is taxable. The exception is nondeductible contributions the original owner made; in that case, Box 2a reflects only the taxable portion and the nontaxable amount appears in Box 5.
Inherited Roth IRAs
Inherited Roth IRAs are generally tax-free. Contributions always come out tax-free because the original owner already paid income tax on that money. Earnings are also tax-free as long as the Roth had been open at least five tax years, counted from January 1 of the year the original owner made the first Roth contribution.4Internal Revenue Service. Retirement Topics – Beneficiary If the account was open fewer than five years when the owner died, only the earnings portion is taxable; contributions still come out tax-free. The five-year clock does not reset when you inherit.
Non-Qualified Annuities
Code 4 also appears on death benefits from non-qualified annuities, which are annuities bought outside a retirement plan with after-tax money. The gain above the original owner’s investment is taxable as ordinary income to the beneficiary, and gains are treated as distributed first. If you annuitize the proceeds over your life expectancy, the exclusion ratio spreads the gain across payments so each one is partly tax-free return of investment and partly taxable gain. A lump sum pulls all of the gain into a single tax year.
If You Are the Surviving Spouse
A surviving spouse has flexibility no other beneficiary gets. The two main choices are rolling the inherited account into your own IRA or keeping it titled as an inherited account, and the right call usually turns on your age and whether you might need the money.
Rolling it into your own IRA treats the account as if it had always been yours. You follow your own RMD schedule, so distributions do not have to start until age 73, or age 75 if you were born in 1960 or later.5Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs The trade-off: if you are under 59½ and tap those rolled-over funds, the 10% early withdrawal penalty applies, because the account is now yours and no longer an inherited account.
Keeping it as an inherited IRA makes sense if you are younger than 59½ and may need access. Distributions from an inherited account are always exempt from the early withdrawal penalty regardless of your age, and you can delay distributions until the year the deceased spouse would have turned 72.4Internal Revenue Service. Retirement Topics – Beneficiary You can roll it into your own IRA later, after you cross 59½.
If You Are a Non-Spouse Beneficiary
Non-spouse beneficiaries have far fewer options. The assets must stay in an account titled as an inherited IRA or inherited 401(k) in the deceased owner’s name for the benefit of the beneficiary. You cannot roll inherited funds into your own existing IRA. A direct trustee-to-trustee transfer into a properly titled inherited account is the only way to move the money without triggering immediate taxation; the 60-day rollover available to account owners is not available to non-spouse beneficiaries.
Titling matters. The account should read something like “John Smith, deceased, IRA for benefit of Jane Smith, beneficiary.” If the account is retitled under only your name, the IRS treats the entire balance as a taxable distribution in that year.
The 10-Year Rule
Most non-spouse beneficiaries who inherited from someone who died after December 31, 2019, must empty the account by December 31 of the tenth year after the year of death.5Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs If the owner died in 2024, the full balance must be out by the end of 2034. Within that window you have some flexibility to manage your tax bill by choosing how much to take each year. Spreading roughly equal amounts over the decade often keeps you in a lower bracket than waiting and taking one large distribution in year ten.
Annual RMDs Inside the 10-Year Window
This is where many beneficiaries have been caught out. If the original owner died on or after their required beginning date, meaning they were already old enough to be taking their own RMDs, you must take annual minimum distributions in years one through nine of the ten-year window and empty whatever remains by the end of year ten.6Internal Revenue Service. Notice 2024-35, Certain Required Minimum Distributions for 2024 If the owner died before their required beginning date, no annual distributions are required; you just need the account emptied by the deadline.
The IRS waived the penalty for missed annual RMDs from 2021 through 2024 while the rules were being finalized. That waiver does not extend to 2025, so beneficiaries who are subject to annual RMDs should plan to take them each year going forward.
Beneficiaries Who Can Still Stretch
Five categories of eligible designated beneficiaries are exempt from the 10-year rule and can still take distributions over their own life expectancy:5Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs a surviving spouse; a minor child of the account owner (only until age 21, when the 10-year rule kicks in); a disabled individual meeting the IRS definition under IRC Section 72(m)(7); a chronically ill individual certified by a licensed health care practitioner; and anyone not more than 10 years younger than the deceased, which covers siblings close in age and same-generation friends. The minor-child exception applies only to the account owner’s own children, not grandchildren, nieces, or nephews.
Reporting the Distribution on Your Return
Where the distribution goes on Form 1040 depends on the account type. Inherited IRA distributions go on Lines 4a and 4b. Inherited distributions from 401(k)s, pensions, 403(b)s, and annuities go on Lines 5a and 5b.7Internal Revenue Service. 1040 (2025) If the full amount is taxable, enter it on the taxable-amount line only (4b or 5b).
If Box 4 shows federal income tax withheld, claim it on Line 25b of Form 1040 as a tax payment already made. The default withholding on nonperiodic IRA distributions is 10%, which you can adjust or opt out of by filing Form W-4R with the payer.8Internal Revenue Service. Pensions and Annuity Withholding For eligible rollover distributions from employer plans, mandatory withholding is 20% unless you elected a direct rollover. The default rates often undertax large inherited distributions, so if a big withdrawal pushes you into a higher bracket, consider estimated payments to avoid an underpayment penalty.
What Happens If You Miss an RMD
Failing to take a required distribution from an inherited account triggers a 25% excise tax on the shortfall.5Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs The penalty drops to 10% if you fix it within two years by taking the missed distribution and filing an amended Form 5329.
If you inherited an account in 2020 through 2024 and skipped annual distributions, the IRS penalty waiver covers those years. Starting with 2025, confirm whether annual RMDs apply to your situation and take them on time.
If the Estate Paid Federal Estate Tax
If the deceased owner’s estate was large enough to owe federal estate tax, you may be entitled to a federal income tax deduction under IRC Section 691(c) for the portion of estate tax attributable to the retirement account.9Office of the Law Revision Counsel. 26 USC 691 – Recipients of Income in Respect of Decedents The deduction keeps the same dollars from being fully taxed twice, once in the estate and again as income to you. It is claimed as an itemized deduction on Schedule A and is not subject to the 2% AGI floor. The calculation requires the total estate tax paid and the retirement account’s share of the estate, so this is one to work through with a tax professional.
If the Code Is Wrong
A 1099-R that shows Code 1 (early distribution) or Code 7 (normal distribution) when it should show Code 4 can trigger an incorrect 10% penalty assessment. Contact the payer first and ask for a corrected form.10Internal Revenue Service. Topic No. 154, Form W-2 and Form 1099-R (What to Do if Incorrect or Not Received)
If the corrected form has not arrived by the end of February, call the IRS at 800-829-1040. The IRS will contact the payer on your behalf and send you Form 4852, which substitutes for the 1099-R.11Internal Revenue Service. Substitute for Form W-2, Wage and Tax Statement, or Form 1099-R On Form 4852 you enter the correct code and explain how you determined it, such as attaching a copy of the death certificate. If the corrected 1099-R arrives after you have already filed and the numbers differ, file an amended return on Form 1040-X.