IRS Form 1099-R Instructions: Box 7 Codes, Taxes, and Rollovers

Form 1099-R reports money that came out of a retirement plan, pension, annuity, IRA, or insurance contract during the tax year, and the instructions for reading Form 1099-R come down to three things: what each box means, what the code in Box 7 tells the IRS, and where the numbers go on your Form 1040. Any payout of $10 or more triggers the form, and the payer must send your copy by January 31 of the following year.¹

Reading the Boxes

Start at the top of the form. Confirm the payer’s information and check that your Social Security number or ITIN matches your records. A mismatch can trigger backup withholding and slow your refund. If the number is wrong, ask the plan administrator for a corrected form right away.

Box 1 shows the gross distribution: the total amount paid out before any taxes or other deductions. Compare it against your year-end account statement.²

Box 2a shows the taxable portion. If the payer could not calculate it, Box 2a is blank and the “Taxable amount not determined” box in 2b is checked. When that happens, the calculation falls to you. Box 2b holds a second checkbox, “Total distribution,” meaning the payer liquidated your entire account balance during the year. Both boxes can be checked at once because they answer different questions.²

Box 4 is federal income tax already withheld and sent to the IRS on your behalf. You claim it as a credit on your return.

Box 5 shows employee contributions or insurance premiums. If you made after-tax contributions to the plan, this box reflects the portion of the distribution that is a return of money you already paid tax on. That amount is not taxed again.²

Box 7 is the distribution code, one or two characters that tell the IRS why the money came out and whether penalties apply. It is the most important box on the form and gets its own section below.

Boxes 12 through 19 handle state and local reporting. If your state or locality taxes retirement income, the payer may have withheld and forwarded amounts shown in Boxes 14 and 17.²

What the Code in Box 7 Means

The character in Box 7 drives how the IRS treats your distribution. The codes you are most likely to see:

Code 1, early distribution, no known exception. You took money out before age 59½, and the payer is not aware of any reason the 10% early withdrawal penalty should be waived. If you actually qualify for an exception, you can claim it yourself on Form 5329.
Code 2, early distribution with a known exception, such as substantially equal periodic payments.
Code 3, disability.
Code 4, death. The distribution went to a beneficiary after the account owner’s death. This code exempts the payout from the 10% early withdrawal penalty regardless of the beneficiary’s age.³
Code 7, normal distribution. You met the age or service requirements for a standard payout. No early withdrawal penalty applies.⁴
Code 8, excess contributions returned before the tax deadline.
Code G, direct rollover. Funds moved directly from one qualified plan or IRA to another without ever landing in your hands. No tax is due.
Code Q, qualified Roth distribution. A tax-free payout from a Roth IRA or designated Roth account that met the five-year holding period and a qualifying trigger such as reaching age 59½.

The code the payer picked does not always tell the full story. If you qualify for a penalty exception the payer didn’t reflect, Form 5329 is how you set the record straight.

How Much of the Distribution Is Taxable

The answer depends on the account.

Traditional IRAs, 401(k)s, and Pensions

Distributions are generally taxed in full as ordinary income. The exception is if you made after-tax (non-deductible) contributions. In that case, you separate the taxable portion from the return of your own money using Form 8606. It takes your total non-deductible contributions (your basis), divides by your total traditional IRA balances, and produces the fraction that represents the tax-free slice of each distribution.⁵

The IRS treats all of your traditional IRAs as one combined pool for this pro-rata calculation. You cannot cherry-pick which dollars come out first. When Box 2b says “Taxable amount not determined,” the payer is telling you they don’t have enough information about your contribution history, and the calculation is on you.

Roth Accounts

Distributions of your original Roth contributions are always tax-free because you already paid tax on that money going in. Earnings come out tax-free only if the distribution is qualified, which requires holding a Roth account for at least five years and being 59½ or older, permanently disabled, a first-time homebuyer (up to $10,000), or a beneficiary receiving funds after the owner’s death.⁶ Without both conditions, the earnings portion is taxable and may face the 10% early withdrawal penalty.

If Box 7 Shows Code 1, You May Still Avoid the Penalty

Money taken from a retirement account before age 59½ usually costs an extra 10% on top of ordinary income tax.⁷ The list of exceptions is longer than most people realize. Any of these lets you sidestep the penalty even if your 1099-R shows Code 1:

Separation from service at age 55 or older. If you left your job during or after the year you turned 55, distributions from that employer’s plan (not an IRA) are penalty-free. Public safety employees qualify starting at age 50.
Substantially equal periodic payments based on your life expectancy, taken at least annually.
Disability or terminal illness.
Unreimbursed medical expenses exceeding 7.5% of adjusted gross income.
Birth or adoption expenses up to $5,000 per child.
Qualified higher education expenses (IRAs only).
First-time home purchase up to $10,000 (IRAs only).
Federally declared disaster distributions up to $22,000.
Domestic abuse victim distributions up to the lesser of $10,000 or 50% of your account balance.
IRS levy on the retirement account.

When the payer knows about the exception, Box 7 reflects it. When they don’t, file Form 5329 with your return. Enter the exception number on line 2 and the excluded amount, and the IRS will remove the penalty.⁸ Skipping Form 5329 when you have Code 1 is one of the most expensive filing mistakes in retirement tax, because the IRS assesses the 10% automatically.

Rollovers on a 1099-R

Rollovers generate 1099-Rs, and this is where avoidable tax bills happen most often.

A direct rollover sends the money straight from one plan or IRA to another. You never touch it, Box 7 shows Code G, and no tax is due. An indirect rollover is different: the plan writes you a check, and you have 60 days to deposit the money into another qualified account.⁹ Miss that window by a day, and the entire amount becomes taxable income for the year.

Here is the trap. When an employer plan pays you directly instead of rolling the money over, federal law requires the payer to withhold 20% for taxes.¹⁰ To roll over the full original amount, you have to come up with that 20% out of pocket and deposit it along with the check you received. Otherwise the withheld portion is treated as a taxable distribution, and under age 59½ it also picks up the 10% early withdrawal penalty. You get the withheld amount back as a credit when you file, but the short-term cash squeeze catches people. A direct rollover avoids the whole problem.

For IRA-to-IRA indirect rollovers, the IRS limits you to one rollover in any 12-month period.¹¹ A second indirect rollover inside that window is treated as a taxable distribution and may also trigger a 6% excess contribution penalty if deposited into the receiving IRA. Direct trustee-to-trustee transfers do not count against this limit.

Reporting the Numbers on Form 1040

Where the amounts land depends on the type of account.

IRA distributions: gross distribution from Box 1 on line 4a, taxable amount from Box 2a on line 4b.
Pensions, annuities, 401(k)s, and 403(b)s: gross distribution on line 5a, taxable amount on line 5b.¹²

When the distribution was fully taxable, which is the common case for a traditional account with only deductible contributions, you can skip line 5a and enter the full amount on line 5b. Federal tax withheld from Box 4 goes on the payments section so you get credit for money already sent in.

On a paper return, attach your copy of the 1099-R when Box 4 shows any federal withholding.¹³ Electronic filing software imports the data and transmits it in place of the physical form. Either way, a mismatch between what you report and what the IRS received from the payer will generate an automated notice and delay your refund.

Qualified Charitable Distributions

If you are 70½ or older and directed money from your IRA straight to a qualifying charity, you made a qualified charitable distribution. For 2026, the annual limit is $111,000 per person.¹⁴ Your IRA custodian is not required to flag a QCD on the 1099-R, so the full distribution amount shows in Box 1 with no special code. To keep the QCD out of taxable income, enter the total distribution on line 4a, put the taxable portion (excluding the QCD amount) on line 4b, and write “QCD” next to line 4b.

Inherited Accounts and RMDs

An inherited IRA or employer-plan distribution comes on a 1099-R with Code 4 in Box 7. The full amount is usually taxable unless the original owner had made non-deductible contributions. Code 4 means no early withdrawal penalty applies, regardless of your age.³

Required minimum distributions from traditional retirement accounts generate a 1099-R each year and are taxed as ordinary income. The starting age is 73 for anyone reaching 73 between 2023 and 2032, and 75 for those born in 1960 or later.¹⁵

If the Form Is Wrong or Missing

If any information on your 1099-R is off, the distribution amount, the code in Box 7, the withholding, contact the plan administrator or payer and ask for a corrected form. Financial institutions issue corrections on a new 1099-R marked “CORRECTED” at the top. Do this early, because corrections issued after you file mean an amended return.

If January 31 passes and no form has arrived, contact the payer. If you still don’t have it by the end of February, call the IRS at 800-829-1040 with the payer’s name, address, and phone number. The IRS will contact the payer on your behalf.¹⁶

If the filing deadline arrives and you still don’t have the form, use Form 4852 as a substitute. You estimate the distribution amount and withholding from your own records, account statements, check stubs, deposit records, and attach Form 4852 in place of the 1099-R.¹⁷ If the real 1099-R turns up later with different numbers, file an amended return.

Changing Withholding on Future Distributions

If Box 4 is showing more or less withholding than your actual tax liability warrants, you can change it going forward. The IRS uses two forms:

Form W-4P for recurring payments such as monthly pension checks or annuity income. It works like the standard W-4 for wages.
Form W-4R for one-time or irregular withdrawals, such as a lump-sum distribution or an IRA withdrawal.¹⁸

Send the form to your plan administrator or IRA custodian, not to the IRS. You cannot opt out of the 20% mandatory withholding on eligible rollover distributions from employer plans unless you choose a direct rollover.¹⁰ For non-rollover distributions and IRA payouts, you have room to set withholding at a rate that fits your expected bracket.

Keep the form itself. Hold every 1099-R for at least three years after filing the return that reported it, which matches the general IRS audit window.¹⁹ If you made non-deductible contributions to a traditional IRA, keep those records permanently. You may need them decades later to prove your basis on Form 8606, and losing the paper trail means paying tax twice on the same money.

1
Internal Revenue Service. About Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.
2
Internal Revenue Service. Instructions for Forms 1099-R and 5498
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Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
4
Internal Revenue Service. Instructions for Forms 1099-R and 5498
5
Internal Revenue Service. Instructions for Form 8606
6
Internal Revenue Service. Roth IRAs
7
Internal Revenue Service. Substantially Equal Periodic Payments
8
Internal Revenue Service. Instructions for Form 5329
9
Internal Revenue Service. Retirement Plans FAQs Relating to Waivers of the 60-Day Rollover Requirement
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Office of the Law Revision Counsel. 26 USC 3405 – Special Rules for Pensions, Annuities, and Certain Other Deferred Income
11
Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions
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Internal Revenue Service. 2025 Instructions for Form 1040
13
Internal Revenue Service. Form 1099-R
14
Congressional Research Service. Qualified Charitable Distributions from Individual Retirement Accounts
15
Congressional Research Service. Required Minimum Distribution (RMD) Rules for Original Owners
16
Internal Revenue Service. What to Do When a W-2 or Form 1099 Is Missing or Incorrect
17
Internal Revenue Service. About Form 4852, Substitute for Form W-2, Wage and Tax Statement, or Form 1099-R
18
Internal Revenue Service. About Form W-4P, Withholding Certificate for Periodic Pension or Annuity Payments
19
Internal Revenue Service. Topic No. 305, Recordkeeping