Key takeaways
- Read the distribution code in box 7a of Form 1099-R before reading the amount. Code G is a direct rollover, not a payment to the client.
- Form W-2 box 12 code D is the 401(k) deferral, and box 1 already excludes it. Do not add it to wages.
- Form 5498 arrives by May 31, 2027, so a rollover has to be proven with the custodian's statement until then.
- Send Form 8606 a basis figure whenever after-tax 401(k) money goes into a traditional IRA.
Sort the client's 401(k) activity first
Ask the client which of four things happened in 2026: payroll contributions, a rollover from one plan or IRA to another, a cash withdrawal paid to the client, or a loan. Each produces a different document, and a repaid loan produces none.
For each plan, collect the plan name, the administrator or custodian, and the date of each event. A client who changed jobs in the year usually has two plans, and each plan issues its own forms.
Form 1099-R: read the code in box 7a
Every distribution from a 401(k) that is paid out, rolled to an IRA, or offset for a defaulted loan is reported on Form 1099-R by the plan. For 2026, the IRS renumbered box 7 into boxes 7a and 7b, so the distribution code is in box 7a and the IRA/SEP/SIMPLE checkbox is in box 7b. A 2025 form and a 2026 form look different in this respect.
The codes that matter most here are: G, a direct rollover to a traditional IRA or another plan; H, a direct rollover from a designated Roth account to a Roth IRA; 1, an early distribution with no known exception, used only when the participant has not reached age 59½; 4, a death benefit paid to a survivor beneficiary; L, a deemed loan distribution; M, a qualified plan loan offset; and B, a designated Roth account distribution.
Box 2b carries an X when the plan could not work out the taxable amount. Box 5 reports the employee's after-tax contributions, which is the number that matters for Form 8606. A code G line is a rollover that went from the plan to an IRA, so match it to the IRA's Form 5498 before treating it as income.
Form 5498: the receiving IRA's side of a rollover
Form 5498 is filed by the IRA trustee or custodian, not the plan. For 2026 it reports rollover contributions in box 2, Roth conversions in box 3, and the fair market value on December 31, 2026 in box 5. The IRS deadline for the trustee to file is May 31, 2027.
Do not hold the return for it. Ask the receiving custodian for the 2026 year-end statement and any rollover confirmation, match the amount to the code G line on the 1099-R, and file the Form 5498 when it arrives.
The failure mode is a client who took a check payable to themselves and deposited it in an IRA. That money is not a direct rollover, so the 1099-R will not carry code G. Ask for the deposit date and the custodian's confirmation, and send both to the preparer.
Form W-2 box 12: read code D and box 3 together
Pre-tax 401(k) deferrals appear on Form W-2 in box 12 with code D, described by the IRS as elective deferrals under a section 401(k) cash or deferred arrangement. Designated Roth 401(k) contributions use code AA. Do not treat code AA as a code D deferral. A 403(b) deferral uses code E.
Deferrals under codes D, E, F, G and S are reported in box 3 even though they are not includible in box 1. So box 1 is already wages after the deferral, and adding box 12 code D to box 1 double counts the money.
Worked example in thousands of dollars: gross pay of 90, with 20 deferred under code D, and pay below the Social Security wage base for the year. Box 1 shows 70, box 3 shows 90, and box 12 code D shows 20. If the December pay stub's year-to-date deferral does not match box 12, the employer has the wrong amount, and the W-2 needs a correction before the return is filed.
Form 8606 when after-tax money is involved
Form 8606 matters when a 401(k) holds after-tax contributions and that money goes to a traditional IRA, or when the client made nondeductible IRA contributions earlier. Part I covers nondeductible contributions and distributions from traditional IRAs, and the IRS says the client's basis is the total of all nondeductible contributions.
For a rollover of after-tax 401(k) money to a traditional IRA, include the nontaxable portion on line 2 of Form 8606. The preparer needs the after-tax amount from box 5 of the plan's 1099-R and the rollover date. Without line 2, the basis is not on the record, and the client has to rebuild it later from old statements.
If the IRA holds both pre-tax and after-tax money, the instructions say a special computation must be made before the rest of Form 8606 is completed, and point to Publication 590-B. Do not assume the after-tax dollars come out first. The Form 8606 instructions on irs.gov when this was checked were for 2025, so confirm line numbers against the 2026 instructions before filing.
401(k) loans: what to ask for and when a loan becomes income
A 401(k) loan is not a distribution while it is being repaid. The IRS limit is the lesser of $50,000 or the greater of $10,000 and 50% of the vested balance. The loan must be repaid within 5 years, except for a loan used to buy the principal residence, which can run longer.
Ask the client for the signed loan agreement, the amortization schedule, and the plan's loan statement as of December 31, 2026. If the client left the employer with a balance outstanding, ask whether the loan was repaid, offset, or left in default.
A loan in default is generally a deemed distribution. The plan may delay the deemed distribution until the end of the calendar quarter after the missed repayment, so a payment missed in June 2026 can be treated as distributed at the end of September 2026. The 1099-R shows code L for a deemed distribution or code M for an offset, and the amount is taxed as an actual distribution.
Hardship withdrawals and the 10% tax
A hardship distribution is included in gross income unless it consists of designated Roth contributions, and it may be subject to the additional tax on early distributions. It cannot be rolled over into an IRA or another qualified plan. Ask the client how the money was used before the preparer decides whether an exception applies.
The IRS lists expenses the plan can treat as an immediate and heavy need, including certain medical expenses, costs of buying a principal residence, tuition and related educational fees, burial or funeral expenses, and certain repairs to a principal residence after casualty damage.
The 10% additional tax applies to distributions before age 59½ unless an exception applies. Two exceptions come up often. One is separation from service during or after the year the employee reaches age 55. The other is a birth or adoption expense of up to $5,000 per child. For a client who turns 55 in 2026 and leaves the employer in March 2026, ask for the separation date, because the rule as written can apply.
What to send the preparer, and the failure modes
Send the client this request: “Please send the Form 1099-R for every 401(k) or IRA distribution you received in 2026, the year-end 2026 statement from each 401(k) and IRA, and any rollover confirmation letter.” Add a line for loans and hardship withdrawals, and ask for the final 2026 pay stub.
A missing 1099-R usually means the plan changed administrators during the year. Ask the old administrator for the 2026 form and the final distribution date, because the form has to come from the payer. A split distribution, where part is rolled over and part is paid in cash, produces two 1099-Rs. Match each one to the plan statement before entering either.