To file your taxes, you need the 401(k) information your plan and employer already sent you: your W-2 for contributions, and a Form 1099-R for any distribution, rollover, or loan default during the year. Everything else on your return flows from those two documents, plus records that back up any rollover or penalty exception you’re claiming. If you didn’t contribute, withdraw, roll over, or default on a loan, your 401(k) generates no tax paperwork at all.
What Your W-2 Shows About Contributions
Your employer reports 401(k) contributions on your W-2 in Box 12. For traditional pre-tax deferrals, look for Code D. That amount was subtracted from your gross pay before the taxable wages in Box 1 were calculated, so if the Code D figure doesn’t match your own pay stubs, your taxable income on the return will be wrong.1Internal Revenue Service. Common Errors on Form W-2 Codes for Retirement Plans
If you contributed to a Roth 401(k), those deferrals appear under Code AA instead. Roth contributions are after-tax, so they’re already included in Box 1 wages. You don’t get a deduction now, but qualified withdrawals later will be tax-free. Code AA on your W-2 doesn’t signal a problem; it just means the money was taxed upfront.2Internal Revenue Service. Retirement Plans FAQs on Designated Roth Accounts
You don’t take a separate deduction for a traditional 401(k) on your return. The tax break already happened inside the Box 1 number.
If You Over-Contributed
Excess deferrals can happen if you changed jobs and both employers ran deductions. Pull the excess and its earnings out by April 15 of the year after the over-contribution, or the same dollars get taxed twice: once in the year you contributed and again when you eventually withdraw. A timely correction generates a 1099-R with Code 8 or P in Box 7 and no early withdrawal penalty. Miss the deadline and you could also owe the 10% penalty on the late correction.3Internal Revenue Service. 401(k) Plan Fix-It Guide – Elective Deferrals Werent Limited to the Amounts Under IRC Section 402(g)
What Your 1099-R Shows About Distributions
Any time money leaves a 401(k), the plan administrator sends you Form 1099-R and files a copy with the IRS. The form shows the gross distribution, the taxable portion, and any federal or state tax that was withheld. Report those figures accurately or an automated notice is likely, because the IRS matches what you file against what the plan reported.4Internal Revenue Service. Instructions for Forms 1099-R and 5498
The distribution code in Box 7 tells the IRS what kind of withdrawal it was. The two most common:
- Code 1 means an early distribution with no known exception. It generally applies if you’re under 59½ and triggers a 10% additional tax unless you qualify for an exception.
- Code 7 means a normal distribution. Used when you’re at least 59½ or the payout otherwise qualifies as standard.
Other codes signal specific situations: G for a direct rollover, 8 or P for a corrective distribution, L or M for a loan treated as distributed.5Internal Revenue Service. Form 1099-R – Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. The withholding boxes matter too; if the plan didn’t withhold enough to cover what you owe, you’ll face an underpayment penalty on top of the tax.
When an Early Distribution Shouldn’t Cost You 10%
A Box 7 Code 1 is not the final word. Several exceptions to the 10% additional tax apply to 401(k) distributions, and you claim them on Form 5329 with your return. Skip the form and the IRS will assess the penalty. Common exceptions include:
- Separation from service during or after the year you turn 55. Distributions from that employer’s plan are exempt from the 10% penalty. This exception applies to 401(k)s but not to IRAs.
- Total and permanent disability, or terminal illness.
- Medical expenses exceeding 7.5% of your adjusted gross income.
- Qualified domestic relations orders paying a spouse or former spouse under a divorce decree.
- Substantially equal periodic payments taken over your life expectancy after separating from service.
- Qualified birth or adoption distributions up to $5,000 per event.
SECURE 2.0 added further exceptions for personal emergency expenses, domestic abuse victims, and pension-linked emergency savings accounts.6Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions If your 1099-R shows Code 1 but you qualify, Form 5329 is where you claim the exception and avoid the extra tax.7Internal Revenue Service. Topic No. 558, Additional Tax on Early Distributions From Retirement Plans
Rollovers: What Documents Prove It Wasn’t a Withdrawal
Moving 401(k) money to another plan or IRA is not taxable, but only if the paperwork matches. The two methods produce very different filing situations.
Direct Rollovers
In a direct rollover, the plan sends your balance straight to the new account. You still receive a 1099-R, but Box 7 shows Code G and Box 2a (taxable amount) should be zero. Nothing is reported as income on your return. This is the clean option.
Indirect Rollovers
With an indirect rollover, the check comes to you, and you have 60 days to deposit it into another qualified plan or IRA. Miss the window and the entire amount becomes taxable income, possibly with the 10% penalty on top.8Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions
There’s a trap. Your employer is required to withhold 20% of the distribution for federal taxes before writing the check. On a $50,000 balance, you receive $40,000. To roll over the full amount, you have to come up with the missing $10,000 from your own funds and deposit $50,000 within 60 days. Deposit only the $40,000 you received and the IRS treats the other $10,000 as a taxable distribution.9Office of the Law Revision Counsel. 26 U.S. Code 3405 – Special Rules for Pensions, Annuities, and Certain Other Deferred Income The withheld amount comes back as a refund when you file, but only if you completed a full rollover. Keep deposit receipts and account statements from both plans to document the timeline.
If a 401(k) Loan Defaulted
Taking a 401(k) loan is not a taxable event and generates no forms by itself. The tax problem starts if you stop making payments or leave your employer and can’t repay. At that point, the outstanding balance is treated as a distribution and you’ll get a 1099-R.
Two codes appear in these situations:
- Code L is a deemed distribution. The loan is technically still on the books but treated as distributed because repayments stopped.
- Code M is a qualified plan loan offset, which typically happens when you leave your job and the account balance is reduced by the unpaid loan amount.
Code M carries an advantage worth knowing about. You have until your tax filing deadline for that year, including extensions, to roll the offset amount into another retirement plan or IRA and avoid the tax entirely.10Internal Revenue Service. Plan Loan Offsets That is far longer than the standard 60-day rollover window. If you’re under 59½ and don’t roll it over, the amount is taxable and subject to the 10% early withdrawal penalty.
Required Minimum Distributions
Once you reach age 73, the IRS requires a minimum withdrawal from your 401(k) each year. Your first RMD is due by April 1 of the year after you turn 73; subsequent RMDs must come out by December 31. If you’re still working for the plan sponsor and the plan allows it, you may be able to delay RMDs until you actually retire.11Internal Revenue Service. Retirement Topics – Required Minimum Distributions (RMDs)
Miss an RMD and the penalty is 25% of the amount you should have withdrawn. Catch it and take the distribution within two years and the penalty drops to 10%. Either way, file Form 5329 with your return for the year you missed the RMD.12Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs RMDs usually appear on a 1099-R with Code 7.
Check Whether You Qualify for the Saver’s Credit
If your income is low to moderate, your 401(k) contributions may earn you a tax credit worth up to $1,000, or $2,000 if married filing jointly. This is the Retirement Savings Contributions Credit, claimed on Form 8880. The credit equals 50%, 20%, or 10% of up to $2,000 in contributions per person, depending on your adjusted gross income and filing status.13Internal Revenue Service. Retirement Savings Contributions Credit (Savers Credit)
One detail catches people out. Recent distributions from retirement accounts reduce the contribution amount that qualifies. The IRS is looking for net new savings, so any distribution in the current year, the two preceding years, or between year-end and your filing deadline offsets your contributions for credit purposes. To fill out Form 8880 accurately, you’ll need your W-2 Box 12 figure plus any 1099-R forms from those recent years.13Internal Revenue Service. Retirement Savings Contributions Credit (Savers Credit)
Don’t Forget State Tax
Federal reporting is only part of the picture. State income tax treatment of 401(k) distributions varies widely. Some states have no income tax; others tax retirement income at rates up to 13.3% for very high earners. A number of states offer partial exemptions for retirement income. Your 1099-R shows state withholding in Boxes 12 through 17 if the plan withheld anything, but that amount may not cover your full state liability. Check your state’s rules before assuming the federal number is all you owe.