Are 1099-R Code 4 Distributions Taxable to Beneficiaries?

A 1099-R with distribution code 4 in Box 7 is generally taxable to the beneficiary when it comes from a pre-tax account like a traditional IRA or 401(k), and generally tax-free when it comes from an inherited Roth. The distribution shown on the form counts as ordinary income to whoever received it, at that person’s marginal rate. The one rule that holds across every account type and every beneficiary: the 10% early withdrawal penalty does not apply, no matter how young the beneficiary is.

What Code 4 Actually Tells You

Code 4 in Box 7 signals that the distribution was made because the account owner died. It applies to any beneficiary — spouse, child, sibling, trust, or estate — and to any age.¹ The code explains why the money moved. It does not decide whether tax is owed.

To figure that out, look at Box 1 and Box 2a. Box 1 shows the gross distribution — the full amount paid out before any withholding.¹ Box 2a shows the portion the payer considers taxable. Three common patterns:

Box 2a matches Box 1: the full distribution is taxable income to you.
Box 2a shows zero: the payer moved the funds directly into an inherited retirement account, so nothing is currently taxable.
Box 2a is blank with Box 2b checked (“Taxable amount not determined”): the payer didn’t calculate it, and you have to figure the taxable portion on your return.²

The third pattern is common on inherited Roth distributions, where the payer often can’t tell what portion of a withdrawal represents original contributions versus earnings.

The 10% Early Withdrawal Penalty Never Applies

Withdrawals from retirement accounts before age 59½ normally trigger a 10% additional tax. Code 4 distributions are fully exempt. The law carves out any distribution made on or after the account holder’s death, and the exemption covers 401(k)s, traditional IRAs, Roth IRAs, SEPs, and SIMPLE IRAs.³

This matters most for younger beneficiaries. A 35-year-old who inherits a parent’s traditional IRA owes ordinary income tax on withdrawals but never the 10% penalty, provided the money stays in an inherited account.⁴ That protection can be lost. If a surviving spouse rolls the funds into their own IRA and later withdraws before 59½, the penalty applies again unless a different exception fits.

If You’re the Surviving Spouse

Surviving spouses have the widest set of choices. Two paths are available, and the tax picture depends on which one you take.

You can roll the inherited funds into your own existing IRA or employer plan and treat the money as if it had always been yours.⁵ A direct trustee-to-trustee rollover creates no current-year tax; Box 2a on the 1099-R typically shows zero in that case. If instead you received a check and deposited it into your own IRA within 60 days, the 1099-R will usually show the full amount in Box 2a as taxable, and you report the completed rollover on your Form 1040 to back it out.⁶ Missing the 60-day window makes the entire amount taxable that year.

The alternative is keeping the account titled as an inherited IRA. This preserves the death-distribution exemption from the 10% penalty, which is the deciding factor for a spouse under 59½ who might need to draw on the money.⁵ Any distributions taken from the inherited IRA are taxable as ordinary income (or tax-free if inherited Roth), but no penalty layers on top.

If You’re a Non-Spouse Beneficiary

Children, siblings, friends, and other non-spouse beneficiaries cannot roll inherited retirement funds into their own personal IRA or 401(k). The assets have to stay in an inherited IRA titled in the deceased owner’s name for the benefit of the inheritor, and the only way to move them without triggering tax is a direct trustee-to-trustee transfer.⁷ If a non-spouse beneficiary takes a check, it’s a taxable distribution — there is no 60-day rollover option to undo it. This is the single most expensive mistake in the process, so arrange the transfer with the plan administrator before any money moves.

Once the account is properly titled, the taxability of each withdrawal follows the account type.

Pre-Tax Accounts

Every dollar withdrawn from an inherited traditional IRA or traditional 401(k) counts as ordinary income in the year received. The contributions and growth were never taxed, so the tax happens on the way out. Your marginal bracket in the year of withdrawal drives the actual bill, which is why the timing of distributions across the allowed window can matter a lot.

Inherited Roth Accounts

Withdrawals of contributions from an inherited Roth IRA are always tax-free. Withdrawals of earnings are also tax-free in most cases, with one exception: if the Roth was less than five years old when the withdrawal occurs, the earnings portion may be taxable.⁵ The five-year clock runs from January 1 of the year the original owner first contributed to any Roth IRA, not from when you inherited it. Most Roth accounts have been open well past five years by the time they pass to a beneficiary, so this usually isn’t an issue, but it’s worth checking with a recently opened Roth.

Even when the tax bill on an inherited Roth is zero, the distribution timeline rules still apply. Distributions must come out on schedule; they just come out untaxed.

Federal Tax Withholding on the Distribution

When a plan pays out inherited funds, the default federal withholding rate for most death distributions (which fall under “nonperiodic payments”) is 10%.⁸ You can raise, lower, or eliminate that rate by filing Form W-4R with the plan administrator. State rules vary, and states with no income tax don’t withhold at all.

Ten percent is often not enough. A large lump sum from an inherited traditional IRA can push you into a higher bracket and leave you owing at filing time. If you’re taking a sizable distribution, either bump up withholding or set aside estimated tax payments during the year to avoid an underpayment penalty.

What Happens After the First Distribution

The 1099-R you’re holding covers what came out this year. Taxability of that specific distribution is the question above; what you owe going forward depends on distribution timing rules that apply separately. Most non-spouse beneficiaries who inherited from someone who died in 2020 or later must empty the entire inherited account by the end of the tenth year after the owner’s death, and some must take annual minimum distributions during that window as well.⁹ Certain beneficiaries — surviving spouses, minor children of the deceased, disabled or chronically ill individuals, and people not more than 10 years younger than the deceased — qualify as Eligible Designated Beneficiaries and can stretch distributions over their own life expectancy instead.⁸ Missing a required distribution triggers a 25% excise tax on the shortfall, dropping to 10% if you correct it within two years.¹⁰

So the short answer for the 1099-R in front of you: check Box 2a. If it shows an amount, that amount goes on your return as ordinary income for the year, and no 10% penalty attaches. If it shows zero, the payer treated the payment as a direct transfer into an inherited account and nothing is currently taxable. If Box 2b is checked and 2a is blank, the taxable portion is yours to figure — usually the full amount for pre-tax accounts, and usually zero for a mature inherited Roth.

1
Internal Revenue Service. Instructions for Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.
2
Internal Revenue Service. Instructions for Forms 1099-R and 5498 (2025)
3
Office of the Law Revision Counsel. 26 USC 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts
4
Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
5
Internal Revenue Service. Retirement Topics – Beneficiary
6
Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions
7
Office of the Law Revision Counsel. 26 USC 402 – Taxability of Beneficiary of Employees Trust
8
Internal Revenue Service. Publication 590-B (2025), Distributions From Individual Retirement Arrangements (IRAs)
9
Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs
10
Internal Revenue Service. Retirement Topics – Required Minimum Distributions (RMDs)