1099-R Code 1B: Taxable Amount, Penalty, and Reporting

Code 1B on Form 1099-R means you took an early distribution from a designated Roth account inside an employer plan such as a Roth 401(k), Roth 403(b), or governmental Roth 457(b). The “1” says you were under 59½ when the money came out; the “B” identifies the source as a designated Roth account. Because the payout doesn’t meet the rules for tax-free treatment, the earnings portion is taxable and usually carries a 10% early withdrawal penalty.

What the Two Codes Say Together

Box 7 can hold up to two codes, and 1B is two codes working as a pair.

Code 1 is “early distribution, no known exception.” The plan administrator uses it when you’re under 59½ and no penalty exception was identified at the time of the payout.¹ It flags the distribution to the IRS as potentially subject to the 10% additional tax under Section 72(t).

Code B says the money came from a designated Roth account within an employer-sponsored retirement plan.¹ A designated Roth account is a separate account inside a 401(k), 403(b), or governmental 457(b) that holds your after-tax Roth contributions and their earnings.²

One boundary worth stating upfront: Code B is not about Roth IRAs, and it is not the code for converting a traditional IRA to a Roth IRA. Those conversions use Code 2 (under 59½) or Code 7 (59½ or older).³ If your form shows 1B, the account was inside your employer’s plan.

Why the Distribution Isn’t Qualified

Money leaves a designated Roth account completely tax-free only when the distribution is “qualified.” Two conditions must both be met. You must have held the designated Roth account for at least five tax years, counting from January 1 of the year of your first Roth contribution to that plan. And the distribution must happen after you reach 59½, become disabled, or die.⁴

Code 1B tells you at least one of those failed. The “1” means you were under 59½, so the age requirement wasn’t met (disability or death would generate different codes). Non-qualified status is why the earnings portion becomes taxable.

The five-year clock matters even if you’re already over 59½ in some other context. If you first contributed to the Roth 401(k) in March 2024, the clock runs from January 1, 2024 through December 31, 2028. Money rolled in from a designated Roth account at a prior employer may bring an earlier start date with it.⁴ Box 11 on your 1099-R shows the first year of designated Roth contributions, which anchors the calculation.¹

What Part Is Actually Taxable

You already paid income tax on the contributions when they went in, so those come back tax-free. The earnings are what gets taxed. A non-qualified payout from a designated Roth account is split pro-rata between contributions and earnings, which is different from a Roth IRA where contributions come out first.⁵

Your 1099-R does the math. Three boxes carry the story:

Box 1 shows the gross distribution, the total paid out.
Box 5 shows your basis, the portion made up of your Roth contributions. This part is not taxable.¹
Box 2a shows the taxable amount, which is the earnings portion.

A quick example. Say the account holds $50,000 of contributions and $10,000 of earnings, and you withdraw the full $60,000. About $50,000 comes back as a tax-free return of contributions; about $10,000 is taxable earnings. Box 5 would show $50,000, and Box 2a would show $10,000. If the account has grown for years, the earnings share of any withdrawal can be larger than you expect.

The 10% Early Withdrawal Penalty

The taxable amount in Box 2a is subject to the 10% additional tax on early distributions under Section 72(t).⁶ It hits only the taxable earnings, not the return of your contributions. In the example above, that’s $1,000 (10% of $10,000), not $6,000.

You calculate and report the penalty on Form 5329. For a Code 1B distribution, the taxable amount from Box 2a goes on line 1 of Form 5329, and the resulting additional tax flows to your Form 1040.⁷

Exceptions That Can Wipe Out the Penalty

Code 1 only tells the IRS the plan administrator didn’t apply an exception at the source. You can still claim one yourself on Form 5329 if you qualify. Section 72(t)(2) exceptions include:⁶

Separation from service during or after the year you turned 55, for distributions from that employer’s plan. This one is easy to miss.
Total and permanent disability as defined by the tax code.
A series of substantially equal periodic payments over your life expectancy.
Unreimbursed medical expenses above 7.5% of your adjusted gross income.
Payments to an alternate payee under a qualified domestic relations order.
Distributions taken to satisfy an IRS levy against the plan.

To claim one, enter the exception code on line 2 of Form 5329 and the form reduces or removes the penalty.⁷ The age-55 separation rule applies to employer plans but not to IRAs, which is a real advantage if you’re retiring in your mid-50s and thinking about where to leave the money.

Check Box 10 for In-Plan Roth Rollover Recapture

If your designated Roth account contains amounts converted from the pre-tax side of the same plan through an in-plan Roth rollover, an extra rule can apply. The taxable portion of that conversion is subject to a five-year recapture rule. Take a distribution within five tax years of the in-plan rollover and the rolled-over taxable amount is treated as includible in income for purposes of the 10% penalty, even though you paid income tax on it in the conversion year.⁴

Box 10 shows the portion of the current distribution allocable to in-plan Roth rollovers made in the previous five years. If Box 10 has a figure, add it to line 1 of Form 5329.⁷ Recapture doesn’t apply to the non-taxable portion of the earlier rollover, and it doesn’t apply if a Section 72(t) exception covers the distribution.

How to Report It on Your Return

Two forms carry the reporting, sometimes with a third piece to be aware of.

On Form 1040, distributions from employer retirement plans go on the pensions and annuities lines. Put the gross distribution from Box 1 on line 5a and the taxable amount from Box 2a on line 5b.⁸ If the entire payout was a return of your Roth contributions with no earnings, Box 2a is $0 and line 5b is $0.

On Form 5329, Part I, enter the taxable amount on line 1, note any exception on line 2, and let the form calculate the penalty on line 4. That figure carries over to your 1040.⁷

Form 8606 does not come into this. That form tracks basis in traditional IRAs and distributions from Roth IRAs. Your designated Roth basis is already reported by the plan administrator in Box 5.

Rolling It to a Roth IRA Instead

If you’re leaving your employer and don’t actually need the cash, a direct rollover to a Roth IRA sidesteps the Code 1B tax hit entirely. The plan sends the designated Roth balance straight to a Roth IRA custodian, the 1099-R uses Code H rather than Code B, Box 2a is $0, and no income tax or penalty applies to the transfer.³

The rollover also preserves your five-year clock. The original start date from the designated Roth account carries over into the Roth IRA for determining when converted amounts can come out penalty-free, and if you’d already met the five-year holding period in the plan, you don’t restart it.⁴

If the check comes to you instead of going directly to the Roth IRA custodian, the plan must withhold 20% of the taxable portion for federal taxes.⁹ To avoid the tax and penalty, you’d have 60 days to deposit the full distribution, including the withheld amount, into a Roth IRA, with the withheld portion covered from other funds until you get it back at filing time.

1
Internal Revenue Service. Instructions for Forms 1099-R and 5498 (2025)
2
GovInfo. 26 U.S. Code 402A – Optional Treatment of Elective Deferrals as Roth Contributions
3
Internal Revenue Service. Instructions for Forms 1099-R and 5498 (2025)
4
Internal Revenue Service. Retirement Plans FAQs on Designated Roth Accounts
5
Internal Revenue Service. Retirement Topics – Designated Roth Account
6
Office of the Law Revision Counsel. 26 U.S. Code 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts
7
Internal Revenue Service. 2025 Instructions for Form 5329 – Additional Taxes on Qualified Plans
8
Internal Revenue Service. Publication 575 (2025), Pension and Annuity Income
9
Internal Revenue Service. 401(k) Resource Guide – Plan Participants – General Distribution Rules