Updated August 3, 2026. Quick answer: code 4 means the distribution was paid to a beneficiary after the account owner died. It is used regardless of the age of the participant or the beneficiary, and it carries no 10% early-distribution tax — death is itself an exception.
What the IRS tells the payer
From the current instructions, code 4 is “Death”. The full instruction text is what the custodian is following when it picks this code.
Why age does not matter here
The instructions are unusually blunt: use code 4 “regardless of the age of the participant” to indicate payment to a decedent’s beneficiary, including an estate or trust. A 40-year-old beneficiary taking from an inherited account gets a code 4 and owes no early-distribution penalty.
It is taxable income if the account was pre-tax — the code says nothing about that. It says only that the 10% additional tax does not apply.
What it does not tell you
The code does not tell you your distribution schedule, which is where the real complexity lives — the inherited-account rules and whether annual RMDs apply inside the ten-year window. Getting a clean code 4 and still missing a required distribution is entirely possible.
Box 7 is the payer’s claim, not the law
The code in Box 7 records what the custodian knew when it cut the cheque. It is not a ruling on what you owe, and the IRS instructions say so in as many words. On code 1 the instruction to payers is to use it “even if the distribution is made for medical expenses, health insurance premiums, qualified higher education expenses, a first-time home purchase…” and a list of other genuine statutory exceptions.
In other words the IRS expects the payer to report a distribution as unexcepted when the payer simply does not know, and expects you to claim the exception on your return. That is what Form 5329 is for, and it is the single most useful thing to understand about this form.
Every code in one place: the Box 7 table. If yours looks wrong: how to fix it.
Code meanings are read from the IRS Instructions for Forms 1099-R and 5498 (current edition, tax year 2026), Table 1 — Guide to Distribution Codes, at irs.gov on August 3, 2026. General information, not tax advice. Your own facts decide the outcome, and a preparer or the IRS is the right place to confirm anything consequential.