Retirees get more Forms 1099-R than anyone. One from the pension, one from each IRA custodian, one from an annuity, one from a 401(k) you finally rolled over. Each one goes to the IRS too, and the IRS compares them to your return line by line.
Most retirement-related IRS notices I see are not about anything sinister. They are about a code in box 7 that did not match how the return reported the money.
The boxes that matter
- Box 1, gross distribution. Everything paid out, including amounts rolled over or withheld.
- Box 2a, taxable amount. What the payer believes is taxable.
- Box 2b checkboxes. "Taxable amount not determined" and "Total distribution." If the first is checked, the payer is telling you and the IRS that you have to figure out the taxable amount yourself.
- Box 4, federal income tax withheld. Credited on your return.
- Box 7, distribution code(s). The IRS's roadmap for how to treat the payment.
Florida has no state income tax, so the state boxes are usually blank for Pinellas retirees.
The codes retirees see most
| Code | Meaning | What the IRS expects |
|---|---|---|
| 1 | Early distribution, no known exception | Income tax plus the 10% additional tax unless you claim an exception on Form 5329 |
| 2 | Early distribution, exception applies | Income tax, no 10% additional tax |
| 3 | Disability | Income tax, no 10% additional tax |
| 4 | Death | Income tax to the beneficiary, no 10% additional tax |
| 7 | Normal distribution | Income tax only |
| G | Direct rollover to a plan or IRA | Not taxable if reported as a rollover |
| H | Direct rollover of a designated Roth account to a Roth IRA | Not taxable |
| J | Early distribution from a Roth IRA | Depends on contributions, conversions, and Form 8606 |
| Q | Qualified Roth IRA distribution | Not taxable |
| T | Roth IRA distribution, exception applies | Payer could not confirm the five-year rule; you determine taxability |
| L | Loan treated as a deemed distribution | Taxable; 10% may apply |
| M | Qualified plan loan offset | Taxable unless rolled over within the extended deadline |
| Y | Qualified charitable distribution (new for 2025 forms) | Excluded from income to the extent it meets IRC 408(d)(8) |
Payers often use two codes together, such as 7 with Y, or 4 with G. The current Instructions for Forms 1099-R and 5498 list every code and permitted combination.
Mismatches that cause notices
Code 1 with a valid exception you did not claim
Your IRA custodian does not know about your medical bills or that the IRS levied the account. It uses code 1. If you do not file Form 5329 claiming the exception, the IRS assumes the 10 percent applies. See the 10% early withdrawal penalty exceptions.
A rollover reported as nothing
You rolled over a distribution within 60 days, so you left it off the return. The IRS sees a 1099-R for the full amount and no income. Report the gross amount on the IRA or pension line, enter zero or the correct taxable amount, and write "rollover" as the Form 1040 instructions direct. See failed 60-day rollovers.
Taxable amount not determined
When box 2b is checked, the payer is not vouching for box 2a. Retirees with after-tax contributions in a pension or annuity often need the Simplified Method worksheet in Publication 575 to figure the tax-free portion of each payment. Report the wrong number and the IRS may adjust it.
Qualified charitable distributions
A QCD is reported in box 1 as a normal distribution. If you do not exclude it on your return correctly, the IRS sees the full amount as taxable. See qualified charitable distributions.
Missing forms
The most common problem is the simplest one: a 1099-R that never made it to the tax preparer. A small IRA at a bank, an annuity from an old employer, a distribution after a spouse's death. The IRS has it even if you do not.
Inherited accounts and code 4
When you inherit an IRA or a spouse's plan, distributions to you are reported with code 4. The 10 percent additional tax does not apply to death distributions under 72(t)(2)(A)(ii), regardless of your age. But inherited accounts carry their own distribution deadlines, and spouses who roll an inherited account into their own IRA convert it into their own money for these purposes, meaning the death exception no longer applies to later withdrawals. If you are under 59 and a half and inherited from a spouse, consider that before treating the account as your own. See the inherited IRA 10-year rule.
Keep the paperwork for years
A 1099-R question can come up long after the year it covers, especially for after-tax basis in an IRA, which you track on Form 8606 every year you make nondeductible contributions or take distributions. Keep every Form 8606, every 1099-R, and every Form 5498. When the IRS asks why only part of a distribution was taxable, those forms are the answer.
How the notice arrives
The IRS's Automated Underreporter program matches information returns to filed returns after the filing season. When it finds a gap, it sends a proposed adjustment notice, most often a CP2000, showing the income it believes is missing and the proposed tax, penalty, and interest. It is a proposal, not a bill. You respond by the deadline on the notice, agreeing, partially agreeing, or disagreeing with documentation.
For a 1099-R mismatch, the usual fixes are Form 5329 for an exception, proof of a timely rollover such as a Form 5498 or custodian statement, a corrected 1099-R from the payer, or a taxable-amount computation for after-tax money.
Responding without making it worse
When an underreporter notice proposes tax on a retirement distribution, read the proposed changes line by line. Sometimes the IRS is right about the income and wrong about the 10 percent, or right about both and wrong about the withholding credit. Agree to what is correct, dispute what is not, and send documents instead of explanations alone. If you need more time to gather records, call the number on the notice before the response date and ask.
Getting a corrected 1099-R
If the payer used the wrong code or amount, ask the payer for a corrected form. Payers can issue corrections. If the payer will not correct it and you can document the right numbers, Form 4852, Substitute for Form W-2 or Form 1099-R, lets you report the correct figures with an explanation. Use it carefully; it invites scrutiny, and your documents need to support it.
Withholding shown in box 4
Do not forget to claim the withholding. A surprising number of retirees enter the income from a 1099-R and miss the tax withheld, overstating what they owe. The reverse also happens: claiming withholding from a 1099-R that did not include any. Both create notices. See withholding on pensions and IRAs.
Next step
Before filing, lay every 1099-R next to your return and match box 1, box 2a, box 4, and box 7 to what you reported. If you already received a notice about a retirement distribution, read it carefully and respond by the date. If you want help, call (813) 229-7100. If the result is a balance you cannot pay, the firm's guide on what to do when you owe the IRS is a good starting point.
Questions people ask
What does code 7 mean on Form 1099-R?
A normal distribution, typically to someone 59 and a half or older. The IRS expects regular income tax on the taxable amount and no 10 percent additional tax.
Why did I get an IRS notice for a rollover?
Usually because the return left the distribution off entirely. Report the gross distribution, show the taxable amount as zero or the correct figure, and write rollover next to the line, as the Form 1040 instructions direct.
What if the payer used the wrong code?
Ask the payer for a corrected Form 1099-R. If it will not correct the form and you can document the right figures, you can use Form 4852 with an explanation, or claim an exception on Form 5329.
Is a CP2000 a bill?
No. It is a proposed adjustment from the Automated Underreporter program. Respond by the deadline with agreement or documentation showing why the proposal is wrong.
General information, not legal advice. Reading this page does not create an attorney-client relationship. Tax rules and dollar thresholds change; confirm the current figures for your tax year before acting.