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The Most Common 1099-R Codes When Filing Your Taxes Thumbnail

The Most Common 1099-R Codes When Filing Your Taxes

Financial Planning Taxes Retirement Planning

A 60-second read by the Baron Team:   You will receive a form 1099-R if any money has been moved out of a retirement account.  How much you will pay in taxes will depend on how the money is moved. You want to make sure any movement out of a retirement account is done properly, and the correct code is applied when you file your taxes.  The code will appear in box 7 of the 1099-R. 

Here are some of the most common codes used on the form, and what they mean:

Code: 1 – This means that you took money out of the account before you were 59 ½ and did not qualify for an exception.  If this is the code on your form, you may be assessed a 10% penalty on your withdrawal. 

Code: 4 – This code applies when the account holder dies.  Money can then be rolled into an inherited account, the spouse’s own account, or distributed to the estate.

Code: 7 – This code applies to a normal distribution, after you turn 59 ½.  There should be no penalties on this.  You will see this code any time you withdraw from your IRA or 401(k)s.

Code: B – This code will apply only to Roth accounts.  Read our article here about the difference between Traditional and Roth accounts.

Code: G – You want to see this code if you are transferring one retirement account to another.  By doing a “direct rollover” you will not be assessed taxes or penalties.  If a check is sent to you, you will have 60 days to deposit the funds into a new retirement account, before taxes and penalties are accessed.  Form 5498 proves the money was deposited correctly. 

For IRA’s, you may also receive a 5498 when you contribute to your account.

How do I correct an “incorrect” code?  Reach out to your custodian.  You may need to file form 5498 in some circumstances. 

Source: https://www.irs.gov/pub/irs-pdf/i1099r.pdf

Please reach out to the Baron Team if you have any questions.

Disclosure: This material is not intended to be relied upon as a forecast, research, tax or investment advice.  Please consult your financial planning and tax professional for personal advice.