What is the IRS Code for an IRA?
Know Your Basis (KB) For traditional IRAs, knowing the KB is critical for reporting purposes as it determines which distributions are taxable and helps prevent double taxation of distributions.
Your IRA custodian reports the year-end account fair market value to the IRS on Form 1099-R; self-directed IRA owners may require annual valuation of LLC interests.
Code A
Within any 12-month period, you are only eligible to roll over one distribution from an IRA into another IRA or retirement plan, and only those amounts that represent employee contributions (or designated Roth contributions) plus earnings can be transferred.
When receiving a direct rollover from a SEP or SIMPLE IRA to either a traditional or Roth IRA, report the gross distribution amount in box 1, entering “0” in box 2a, and use Code E in Box 7.
Code B
If you receive an employer-sponsored retirement plan distribution and roll it over into an IRA, typically only one rollover per year can occur. When reporting the gross distribution and any taxable amounts (if any), enter Code J in Box 7.
Distributions of excess employer contributions other than earnings to section 401(k), 403(b), and SARSEPs are treated as distributions; please see Form 1099-R for details.
Code C
When an IRA is closed or revoked and distributions made to participants, report the gross distribution in Box 1 of Form 1099-R and enter “0” for Box 2a and “Code G” in Box 7.
Return of employee contributions plus earnings is considered a qualified distribution and can be transferred into another designated Roth account within 60 days for rolling over into another Roth account.
Code D
Understanding what’s included in Box 12 can be key in developing an effective retirement strategy. Codes such as DD for employer-provided health coverage costs and W for salary reduction contributions to either a SIMPLE or SEP IRA should help inform this planning.
Individual taxpayers and small business owners alike can establish traditional IRAs, Roth IRAs, SEP IRAs and SIMPLE IRAs to hold investments tax deferred until withdrawal at retirement time. Contributions made to an IRA are tax deductible while investment growth occurs tax deferred until withdrawal occurs at retirement time.
Code E
IRAs are tax-deferred retirement accounts designed for individuals. They’re accessible via banks, robo-advisors, and brokerages and anyone with earned income can open one – although there may be contribution limits.
If you receive a distribution from an employer-sponsored plan and roll it over into a traditional IRA, report both amounts as part of Box 1. See Instructions for Form 1099-R below for details.
Code F
When excess employer contributions and earnings under section 401(k), 403(b), or SARSEP plans are distributed, enter both their gross distribution in box 1 and zero distributions in 2a; additionally report in Box 7 the re-designation to Roth IRA.
Your account typically allows for one rollover from one IRA to another IRA every 12-month period; please see Box 7 for any special rules that may apply.
Code G
Use code G when reporting an IRA distribution to an unrelated beneficiary who is nonspouse-designated, as well as direct rollover from non-Roth IRA to Roth IRA account (See Designated Roth accounts below for details).
Code 1 should be used when taking an early distribution from a traditional, SIMPLE, or QRP IRA without an exception (under age 59 1/2) without penalties applied (See Penalty tax on early distributions earlier).
Code H
IRAs are intended as long-term retirement savings vehicles. You can withdraw contributions without penalty after turning age 59 1/2; any earnings taken out prior must pay 10% tax.
When making an in-plan Roth IRA conversion or direct rollover from an eligible Roth account, use code G in box 7.
Code I
If your distribution from a qualified retirement plan includes excess employer contributions and earnings, enter the gross amount in box 1. Enter “0” (zero) in box 2a and “J” for code J in box 7.
Direct trustee-to-trustee rollovers can avoid withholding taxes if deposited within 60 days in another eligible plan or an IRA.
Code J
Use Code J when an IRA owner withdraws funds before their five-year period has elapsed; when neither Q or T apply.
Owen is disabled and therefore eligible to avoid paying the 10% early distribution penalty tax. In order to do this, Owen must check box 7 and enter zeroes in boxes 2a and 2b while also reporting trustee-to-trustee transfers using box 6. Please see Designated Roth Accounts on page R-2 for further guidance.
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