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. .
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.
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.