Codes Used in Box 7 of Form 1099-R for Reporting Solo 401k Distributions & Conversions

Whether you take a distribution from your solo 401k, process conversions (e.g., mega backdoor) or a direct rollover to an IRA, box 7 of Form 1099-R is used to report whether such transaction(s) is taxable or not. Please also VISIT HERE for a distribution crib sheet.

Here are the various codes listed in box 7 of Form 1099-R. 

Code 1-Early Distribution

Use Code 1 only if the solo 401k participant was not age 59 1/2 or older at time of the distribution, AND codes 2,3, and 4 do not apply. Code 1 still applies even if the participant made the distribution to cover medical expenses, qualified higher educational expenses, a first-time home purchase, a qualified reservist or qualified birth or adoption distribution. Lastly,  if applicable, code 1 may also be used with codes 8, B, D, K, L, M, or P. 

Code 2-Early Distribution Exception

Use Code 2 if a distribution exception applies and the solo 401k participant was under age 59 1/2 at time of the distribution. Code 2 is used when the solo 401k participant takes a distribution because of the following:

  • The distribution was made to satisfy an IRS levy under section 6331.
  • The participant qualifies for a penalty tax exception that does not require using codes 1.3, or 4.

Code 3 may be used with code D. . 

Code 3-Disability

Use Code 3 if the solo 401k distribution was made on account of disability pursuant to Section 72(m)(7). Code 3 may be used with code D.

Code 4-Death

Use Code 4 regardless of the solo 401k participant’s age to report payments made to the decedent’s beneficiary. Code 4 may be used with code 8, B, D, G, H, K, L, M, or P.

Code 5-Prohibited Transaction

Use Code 5 if there was a prohibited transaction involving the solo 401k. No other codes are used with code 5.

Code 7-Normal Distribution

Use Code 7 if the solo 401k participant was age 59 1/2 or older at time of the distribution. Code 7 may be used in combination with codes A, B, D, K, L, or M.

Code B-Roth Solo 401k Distribution

Use Code B to report a distribution from a Roth Solo 401k; however, if the Roth solo 401k was directly rolled over to a Roth IRA used code H instead. Code B may be used with codes 1, 2, 4, 7, 8, G, L, M, P, or U. 

Code G-Direct Rollover & Direct Payment

  • Use Code G for a direct rollover from a pretax solo 401k plan to another qualified plan or to a Traditional, SEP or SIMPLE IRA, but not a Roth IRA.
  • Code G is also used to report non-taxable direct rollovers from an IRA to a solo 401k plan.
  • IMPORTANT: Use code H for a direct rollover of a Roth solo 401k to a Roth IRA. DO NOT use code G.
  • Use code G for in-plan solo 401k conversions including the conversion of voluntary after-tax solo 401k funds (mega backdoor) to a Roth solo 401k or to a Roth IRA.
  • Lastly, Code G may be used with codes 4, B, or K. 

Code H-Direct Rollover of a Roth Solo 401k to a Roth IRA

Use Code H is used to report the direct-rollover of a Roth Solo 401k to a Roth IRA. Code H may be used in combination with code 4. 

Code L-Solo 41k Participant Loan Treated as Deemed Distribution Under section 72(p)

Do not use code L, Loans treated as deemed distributions under section 72(p), to report a plan loan offset. See “Loans Treated as Distributions” in the 2020 Instructions for Forms 1099-R and 5498. 

Code L may be used with codes 1, 2, 4, 7, or B. 

For more information, VISIT HERE.

In-Plan Conversion of Pretax Solo 401k Funds QUESTION:

I have a question based on some of the recent videos from George. Based on some direct rollovers that might happen this year from prior 401k accounts into the pre-tax Solo401k account - will I be able to perform an in-plan conversion from the Pre-tax to the Roth account or is this something that can only be done after 59.5 years of age?

Yes, once the former employer plan pre tax funds are transferred to the solo 401k plan, they may be converted to the Roth solo 401k through an in-plan Roth conversion.  Pretax solo 401k funds may be converted at any time to the Roth solo 401k designated account without meeting a triggering event such as age 59 1/2 or older or separation from service. However, pretax solo 401k funds cannot be converted to a Roth IRA unless the account holder meets a triggering event.
When you are ready to process the in-plan conversion of pretax solo 401k fuds to the Roth solo 401k designated account, please complete our on-line conversion form so that we capture the necessary information to issue the form 1099-R to report the taxable conversion. Please click here to view the conversion form.

Should We use Code 2 Instead G for In-Plan Conversion QUESTION:

I converted both pretax and voluntary after tax funds in my solo 401k to the Roth solo 401k. My tax professional is under the impression that code 2 not code G should be use in box 7 of the from 1099R. Is this correct?

A code “G” applies to all 401k conversions (i.e., both pretax and voluntary after-tax funds). Some professionals mistakenly think code 2 applies which is a code that applies to IRA  conversions not 401k conversions including solo 401k conversions.
See the following section listed on page 5 of the IRS Instructions for Forms 1099-R and 5498. https://www.irs.gov/pub/irspdf/i1099r.pdf

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About Mark Nolan

Each day I speak with energetic entrepreneurs looking to take the plunge into a new venture and small business owners eager to take control of their retirement savings. I am passionate about helping others find their financial independence. Having worked for over 20 years with some of the top retirement account custodian and insurance companies I have a deep and extensive knowledge of the complexities of self-directed 401ks and IRAs as well as retirement plan regulations. Learn more about Mark Nolan and My Solo 401k Financial >>

2 Comments

  1. Posted November 5, 2021 at 5:16 am | Permalink

    I became permanent disabiled at age 56. Since then I have made several distributions from my 401k. In each distribution I paid a 10% penalty for early withdrawals, not knowing the exemptions for code 2 in 1099 box 7. I just turned 62, can I get these tax years corrected?

  2. Posted February 7, 2022 at 7:38 pm | Permalink

    On the 1099R for the mega back door Roth, is the EIN for the 401k plan used for both the PAYER and RECIPIENT, for an in-plan distribution to a Roth 401k? Or the is the EIN for the taxpayer used for the RECIPIENT?

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