Updated September 28, 2026. Quick answer: code K flags a distribution of an IRA asset that does not have a readily available fair market value, non-traded stock, an LLC or partnership interest, real estate, or a similar illiquid holding. The tax treatment depends entirely on which other code K is paired with, but the valuation itself is frequently the harder problem.
What the IRS tells the payer
From the current instructions, code K is “Distribution of traditional IRA assets not having a readily available FMV”. The full instruction text reads: “Use code K to report distributions of IRA assets not having a readily available FMV. These assets may include: Stock, other ownership interest in a corporation, short- or long-term debt obligations, not readily tradable on an established securities market; Ownership interest in a limited liability company (LLC), partnership, trust, or similar entity (unless the interest is traded on an established securities market); Real estate; Option contracts or similar products not offered for trade on an established option exchange; or Other asset that does not have a readily available FMV.” It may be used with: 1, 2, 4, 7, 8, G, or Y.
Why K is always paired with something else
Code K by itself carries no age or exception signal; the instructions list it as pairable with 1, 2, 4, 7, 8, G, or Y, and whichever of those is present tells you whether the distribution is early, exception-qualified, a death payment, normal, corrective, a rollover, or a QCD. Read the paired code the same way you would read it standing alone.
The valuation problem
Because these assets have no readily available market price, the custodian’s own valuation is frequently the figure a distribution’s taxable amount gets built from, and it is worth checking rather than assuming it is correct. The same custodian reports that valuation separately, on your year-end Form 5498, under “Box 15a. FMV of Certain Specified Assets”: “Enter the FMV of the investments in the IRA that are specified in the categories identified below.”
Which line it drives
The distribution is reported on the IRA distributions line of Form 1040, the same as any traditional IRA payout, at the valuation the custodian reports.
Common mistakes
- Assuming the custodian’s stated fair market value for an illiquid asset is automatically correct.
- Running into an in-kind transfer problem when trying to move a non-tradable asset between custodians rather than distributing it outright.
Box 7 is the payer’s claim, not the law
The code in Box 7a 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.
Related codes worth reading alongside this one: code 5, and code Y.
Every code in one place: the Box 7 table. If yours looks wrong: how to fix it.
Figures verified against the IRS Instructions for Forms 1099-R and 5498 (2026), the IRS Instructions for Form 5329 (2025), and the IRS Instructions for Form 1040 (2025) on September 30, 2026.
Sources
- IRS, Instructions for Forms 1099-R and 5498 (2026), Table 1, Guide to Distribution Codes: https://www.irs.gov/instructions/i1099r
- IRS, Instructions for Form 5329 (2025): https://www.irs.gov/instructions/i5329
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How our partner relationships workCode 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 September 28, 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.