Code T on Your 1099-R: Taxable Amount, Form 8606, and Five-Year Rule

Code T on a 1099-R marks a Roth IRA distribution where the custodian knows you qualify for one of the three penalty exceptions (age 59½, disability, or death) but can’t confirm you’ve met the five-year holding period. Translation: no 10% early distribution penalty, but the earnings portion of your withdrawal might still be taxable as ordinary income, and it’s on you to figure out whether it is.

That gap between “penalty-free” and “tax-free” is where people get caught. Seeing an exception coded on the form, they assume the money is fully qualified and owe nothing. Sometimes that’s right. Sometimes it isn’t.

What Code T Actually Signals

The IRS instructions tell a Roth IRA custodian to use Code T when the five-year holding period can’t be verified but one of three things is true: you’ve reached age 59½, you’re disabled, or the distribution is going to a beneficiary after the owner’s death.¹ Those are the only three triggers.

First-time homebuyer withdrawals are a common source of confusion. That exception exists, but it does not produce a Code T. It’s handled at your end through the ordering rules and, when relevant, Form 5329.

The custodian’s uncertainty about the five-year rule usually comes down to history the custodian doesn’t have. The clock starts January 1 of the tax year you first funded any Roth IRA, not just the one paying the distribution.² If your first Roth was at a different firm a decade ago, your current custodian has no way to prove that, so it defaults to Code T rather than the fully qualified Code Q.

Why No Penalty Doesn’t Mean No Tax

A Roth IRA distribution is completely tax-free only when it’s a “qualified distribution,” and that requires two conditions at the same time. First, the five-year holding period starting January 1 of the year you first contributed to any Roth IRA. Second, one of these qualifying events:²

Reaching age 59½
Disability, meaning an inability to perform any substantial work due to a physical or mental condition expected to result in death or last at least 12 continuous months³
Death, with the distribution paid to a beneficiary or the estate
A first-time home purchase, up to $10,000 of earnings over your lifetime⁴

Miss one leg of the test and the earnings portion of the withdrawal becomes ordinary income. That is precisely what Code T flags. The custodian confirmed the qualifying event but couldn’t verify the holding period, so the proof of full qualification shifts to you at filing.

How Much of a Code T Distribution Is Actually Taxable

Roth IRAs have a specific ordering system for what comes out of the account, and it works in your favor. Regular contributions come out first, and those are always tax-free because you already paid tax before contributing. Conversions and rollovers come out next, on a first-in, first-out basis. Earnings come out last.²

The practical result: most Code T distributions end up entirely tax-free even when the five-year rule technically hasn’t been met, because the withdrawal doesn’t reach into earnings. The tax problem only appears when a distribution is large enough to dip past contributions and conversions into the earnings layer before the five-year period is up.

A Worked Example

You’re 62. You take a $50,000 distribution from a Roth IRA that holds $40,000 in contributions and $15,000 in earnings. The custodian issues a 1099-R with Code T because it can’t verify when you opened your first Roth.

If your first Roth was opened more than five years ago, both tests are met. The distribution is fully qualified, and all $50,000 is tax-free. You show that on Form 8606 and report zero taxable income.

If your first Roth was opened only three years ago, the five-year rule isn’t met. The first $40,000 comes out of contributions and is tax-free. The remaining $10,000 is earnings and is taxable as ordinary income. The 10% penalty is still off the table because Code T already reflects that you’re over 59½.

How to Report a Code T Distribution

Roth IRA distributions go on Lines 4a and 4b of Form 1040, the IRA lines, not the pension lines. The gross amount from Box 1 of the 1099-R goes on Line 4a, and the taxable portion goes on Line 4b.⁵

Box 2a Will Usually Be Blank

For a Code T distribution, the custodian is instructed to leave Box 2a (Taxable Amount) blank and check “Taxable amount not determined” in Box 2b.¹ That isn’t an error. The custodian doesn’t have your contribution history across every Roth you’ve ever had, so it can’t calculate a taxable amount. You do that on Form 8606.

Form 8606 Is How You Prove the Number

Part III of Form 8606 walks through the ordering rules and produces the taxable amount, if any.⁶ You enter your total basis, meaning the sum of all contributions you’ve ever made to Roth IRAs, and compare that against the distribution. If the distribution doesn’t exceed your total contributions, the instructions tell you to stop: nothing is taxable, and Line 4b of Form 1040 is zero.

File Form 8606 even when the taxable amount is zero. It builds a running record of your basis that protects you on future distributions. Failing to file when required is a $50 penalty per failure, and skipping it leaves no documentation if the IRS asks questions later.⁷

You Generally Don’t Need Form 5329

Because Code T already tells the IRS a penalty exception applies, you usually don’t need Form 5329 to claim it. Form 5329 is the vehicle when the 1099-R shows Code J or Code 1 and you have to demonstrate an exception yourself. With Code T, the custodian has done that step.

If You Actually Have Met the Five-Year Rule

If you know your first Roth contribution was more than five years ago, your Code T distribution is really a qualified distribution and nothing is taxable. You don’t need a corrected 1099-R. Complete Form 8606 Part III, put the full gross amount on Line 4a of Form 1040, and enter zero on Line 4b.⁶

Hang on to records that document the first year you funded a Roth: old tax returns, account statements, Forms 5498. The IRS can ask for proof of the five-year clock, and you’re the only one who can pull it together across all your accounts.

If the Code Looks Wrong

Sometimes Code T shouldn’t be there at all. If the custodian actually had enough information to issue a Code Q, or if no exception really applied and Code J was the right call, ask the custodian for a corrected 1099-R first. If a corrected form hasn’t arrived by the end of February, you can call the IRS at 800-829-1040.⁸ The IRS will contact the custodian and send you Form 4852, a substitute 1099-R you can use to file with your best estimate of the correct figures. If a corrected form eventually arrives with different numbers, amend the return on Form 1040-X.

Code T on an Inherited Roth IRA

Death of the account owner is one of the three conditions that triggers Code T, so beneficiaries often see it on distributions from an inherited Roth IRA.¹ The important detail for beneficiaries is that the five-year holding period carries over from the original owner. It does not restart at death.

If the deceased opened their first Roth in 2018 and died in 2025, the five-year rule is already satisfied, and any earnings the beneficiary withdraws are tax-free. If the owner had only funded a Roth two years before dying, a beneficiary who withdraws earnings before that period is up will owe income tax on the earnings portion, though the penalty is still waived by virtue of the death exception.⁹

1
Internal Revenue Service. Instructions for Forms 1099-R and 5498 (2025)
2
Office of the Law Revision Counsel. 26 U.S. Code 408A – Roth IRAs
3
Office of the Law Revision Counsel. 26 U.S. Code 22 – Credit for the Elderly and the Permanently and Totally Disabled
4
Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
5
Internal Revenue Service. 1040 (2025) Instructions
6
Internal Revenue Service. Instructions for Form 8606 (2025)
7
Office of the Law Revision Counsel. 26 U.S. Code 6693 – Failure to Provide Reports on Certain Tax-Favored Accounts or Annuities
8
Internal Revenue Service. Topic No. 154, Form W-2 and Form 1099-R (What to Do if Incorrect or Not Received)
9
Internal Revenue Service. Retirement Topics – Beneficiary