This article explains what the distribution codes in Box 7 of Form 1099-R mean and how to report distributions correctly in the software. Box 7 helps identify the type of retirement distribution you received, whether it was an early withdrawal, rollover, Roth IRA distribution, death benefit, loan offset, or another type of payment.
What Is Box 7 on Form 1099-R?
Box 7 on Form 1099-R contains one or more distribution codes that describe the type of retirement or pension distribution you received during the tax year.
These codes help determine:
- Whether the distribution is taxable
- Whether an early withdrawal penalty may apply
- Whether the distribution qualifies for special tax treatment
- Whether additional tax forms are required
The description below reflects the IRS definitions provided with Form 1099-R for the 2026 tax year (filed in 2027).
Form 1099-R Distribution Codes
| Code | Definition |
|---|---|
| 1 | Early distribution, no known exception (generally under age 59½) |
| 2 | Early distribution, exception applies (generally under age 59½) |
| 3 | Disability |
| 4 | Death benefit paid to a beneficiary, estate, or trust |
| 5 | Prohibited transaction; the account generally no longer qualifies as an IRA |
| 6 | Section 1035 exchange |
| 7 | Normal distribution |
| 8 | Excess contributions, excess deferrals, or related earnings taxable in 2026 |
| 9 | Cost of current life insurance protection |
| A | May qualify for the 10-year tax option (see Form 4972) |
| B | Distribution from a designated Roth account |
| C | Reportable death benefits under IRC Section 6050Y |
| D | Nonqualified annuity payments that may be subject to Net Investment Income Tax |
| E | Distribution under the Employee Plans Compliance Resolution System (EPCRS) |
| F | Charitable gift annuity |
| G | Direct rollover to a qualified plan, governmental 457(b) plan, 403(b), or IRA |
| H | Direct rollover from a designated Roth account to a Roth IRA |
| J | Early distribution from a Roth IRA, no known exception |
| K | Distribution of IRA assets without a readily available fair market value (FMV) |
| L | Loan treated as a deemed distribution |
| M | Qualified plan loan offset |
| N | Recharacterized IRA contribution made for 2026 |
| P | Excess contributions or earnings taxable in the prior tax year |
| Q | Qualified Roth IRA distribution |
| R | Recharacterized IRA contribution made for the prior tax year |
| S | Early distribution from a SIMPLE IRA during the first two years, no known exception |
| T | Roth IRA distribution where an exception may apply, but the payer cannot determine whether the 5-year requirement has been met |
| U | ESOP dividend distribution under Section 404(k) |
| W | Charges or payments for qualified long-term care insurance contracts |
| Y | Qualified Charitable Distribution (QCD) made directly from an IRA to a charitable organization |
Special Rules for Code L (Loan Treated as a Distribution)
Code L indicates that a retirement plan loan has been treated as a deemed distribution.
A deemed distribution generally occurs when a participant fails to satisfy the loan requirements under the retirement plan rules. Although no cash may have been received, the IRS treats the unpaid loan amount as a taxable retirement distribution.
Important Facts About Deemed Distributions
A deemed loan distribution:
- Is reported on Form 1099-R
- Is taxed under the normal retirement distribution rules
- May be subject to the 10% early withdrawal penalty if the taxpayer is under age 59½
- Cannot be rolled over into another retirement account
- Is not eligible for special 10-year averaging treatment
How Do I Enter a Loan Treated as a Distribution?
If your Form 1099-R reports a loan treated as a deemed distribution, enter it in the software as follows:
- Select Federal
- Select Income
- Choose Select My Forms
- Select 1099-R, RRB, SSA
- Click Add or Edit Form 1099-R
- Enter the information from your Form 1099-R exactly as shown
For Box 7:
- Enter L1 if your Form 1099-R shows Code L and Code 1.
- Enter LB if your Form 1099-R shows Code L and Code B.
Use the code combination exactly as it appears on your Form 1099-R.
Commonly Used Box 7 Codes
The following are some of the most frequently encountered distribution codes:
Code 1 – Early Distribution
Generally indicates a withdrawal before age 59½ where no exception is known to the payer.
This code may trigger an additional 10% early withdrawal tax unless the taxpayer qualifies for an exception.
Code 2 – Early Distribution, Exception Applies
Indicates an early withdrawal where the payer knows an exception applies. This often eliminates the need for the payer to report an early withdrawal penalty.
Code 7 – Normal Distribution
Typically used when the recipient has reached retirement age or otherwise qualifies for a normal distribution.
Code G – Direct Rollover
Generally indicates a tax-free rollover from one retirement account to another eligible retirement account.
Code J, Q, and T – Roth IRA Distributions
These codes are frequently used for Roth IRAs:
- Code J: Early Roth IRA distribution
- Code Q: Qualified Roth IRA distribution
- Code T: Roth IRA distribution where the payer cannot verify whether the Roth IRA 5-year rule has been satisfied
Even when these codes are present, the actual taxability of a distribution depends on the taxpayer's full Roth IRA history and whether qualification requirements have been met.
Code Y – Qualified Charitable Distribution (QCD)
Indicates a distribution sent directly from an IRA to a qualifying charitable organization.
Although reported on Form 1099-R, a properly reported QCD may be excluded from taxable income.
Why Box 7 Matters
Box 7 often determines how the software treats your retirement distribution. Entering the correct code is important because it affects:
- Taxability of the distribution
- Early withdrawal penalties
- Rollover treatment
- Roth IRA reporting requirements
- Additional forms such as Form 5329 or Form 8606
When entering Form 1099-R, always use the distribution code exactly as shown by the payer. If multiple codes appear in Box 7, enter the complete combination shown on the form to ensure the distribution is reported correctly on your tax return.
For additional Information, refer to