Updated August 14, 2026. Quick answer: a code 6 is a form for something that was not a distribution. It reports a § 1035 exchange — one contract swapped for another — and the statute says no gain or loss is recognised. Box 1 may carry a frightening number and box 2a should carry zero. The part worth knowing is that the permitted swaps run one way: of the 16 possible pairings among the four contract types in § 1035(a), 10 are permitted and 6 are not, and every one of the 6 is a move backwards.
What the IRS tells the payer
“6—Section 1035 exchange.”
IRS, Instructions for Forms 1099-R and 5498 (2026), Table 1
“Use code 6 to indicate the tax-free exchange of life insurance, annuity, long-term care insurance, or endowment contracts under section 1035.”
IRS, Instructions for Forms 1099-R and 5498 (2026), Table 1, code 6
Read the phrase the instruction uses: tax-free exchange. The payer is not reporting that money left the contract. It is reporting that one contract became another, which is a reportable event without being a taxable one.
The statute behind it
“No gain or loss shall be recognized on the exchange of”
26 U.S.C. § 1035(a)
That is the whole tax result in nine words. What follows in § 1035(a) is a list of which swaps qualify, and the list is not symmetrical. A life policy has the widest set of exits:
“a contract of life insurance for another contract of life insurance or for an endowment or annuity contract or for a qualified long-term care insurance contract”
26 U.S.C. § 1035(a)(1)
An annuity has a much narrower one:
“an annuity contract for an annuity contract or for a qualified long-term care insurance contract”
26 U.S.C. § 1035(a)(3)
And a long-term care contract has the narrowest of all:
“(4) a qualified long-term care insurance contract for a qualified long-term care insurance contract.”
26 U.S.C. § 1035(a)(4)
The exchange runs one way
Set the four contract types out in the order the statute lists them and mark every pairing the section permits. The result is not a grid with holes scattered through it — it is a staircase:
| From \ To | life insurance | endowment | annuity | qualified long-term care |
|---|---|---|---|---|
| life insurance | yes | yes | yes | yes |
| endowment | — | yes | yes | yes |
| annuity | — | — | yes | yes |
| qualified long-term care | — | — | — | yes |
10 of 16 pairings qualify, 62.5% of them, and every blocked pairing runs backwards up the statute’s own list. You can turn a life policy into an annuity. You cannot turn an annuity back into a life policy. You can turn any of the first three into a long-term care contract, and you can never turn a long-term care contract into anything else. Whether that matters is a planning question rather than a tax one, and it is the reason the life-to-annuity move is a one-way door.
Why the number in box 1 looks alarming
The code 6 you are holding was probably triggered by paperwork you signed months earlier, and the figure in box 1 is the whole contract value that moved. Nothing was paid to you and box 2a should be zero. The three things worth checking, in order:
- Box 2a. If it is not zero, something in the exchange was not covered by § 1035 — commonly cash taken out along the way, or a loan on the old policy that was not carried across.
- The direction. Check it against the staircase above. An exchange the statute does not permit is a surrender followed by a purchase, and a surrender is taxable.
- What did not come across. The tax rule and the contract are different rulebooks, and a fresh surrender charge is the usual surprise — § 1035 has nothing to say about it.
It is box 7a now, not box 7
Every guide to this form, including the ones on this site written before today, calls it Box 7. For tax year 2026 that is the wrong box number:
“We renumbered box 7 and the ‘IRA/SEP/SIMPLE’ checkbox to boxes 7a and 7b and we added boxes 7c (Trump account) and 7d (Earnings on excess contributions).”
IRS, Instructions for Forms 1099-R and 5498 (2026), What’s New
The code itself is unchanged. What moved is the label: the distribution code is in box 7a and the IRA/SEP/SIMPLE tick is box 7b. If you are reading a 2025 form, it is box 7; if you are reading a 2026 form, it is box 7a; and the two boxes added alongside them are narrow — box 7d, for instance, only ever carries a Trump-account figure:
“Enter the total amount of earnings on the amount of excess contributions distributed from a Trump account that is entered in box 1.”
IRS, Instructions for Forms 1099-R and 5498 (2026), Box 7d
The more important point is the older one. The code records what the payer knew when it cut the cheque, and the instructions say as much: a payer is told to use code 1 — the one that means no exception — whenever it simply does not know.
“However, use code 1 even if the distribution is made for medical expenses, health insurance premiums, qualified higher education expenses, a first-time home purchase, a qualified reservist distribution, a qualified birth or adoption distribution, an emergency personal expense distribution, an eligible distribution to a domestic abuse victim, a terminally ill individual distribution, a qualified disaster recovery distribution, or a qualified long-term care distribution under section 72(t)(2)(B), (D), (E), (F), (G), (H), (I), (K), (L), (M), or (N).”
IRS, Instructions for Forms 1099-R and 5498 (2026), Table 1, code 1
So a code is a claim about the payer’s knowledge, not a ruling about your tax. Every code in one place: the code table. If yours is wrong: what to do about it.
What this page does not do
- It does not cover partial exchanges. Splitting one contract across two carries rules that are not in § 1035(a) and were not read for this page.
- It does not compute basis. The old contract’s basis carries into the new one, and none of the mechanics of that are modelled here.
- It reads § 1035(a) only. The definitions and limits in the later subsections, including what makes a long-term care contract qualified, are not quoted.
- The staircase is a reading of one subsection, derived from the four clauses quoted above and nothing else.
Sources
Every figure on this page is computed from the text quoted below, as read at the issuing authority on 2026-08-14.
| What it establishes | Source |
|---|---|
| The code 6 definition, verbatim. | IRS, Instructions for Forms 1099-R and 5498 (2026), Table 1 |
| What the payer is reporting: a tax-free exchange, not a distribution. | IRS, Instructions for Forms 1099-R and 5498 (2026), Table 1, code 6 |
| The operative words of the statute: no gain or loss is recognised. | 26 U.S.C. § 1035(a) |
| What a life policy may be exchanged for – the widest of the four clauses. | 26 U.S.C. § 1035(a)(1) |
| What an annuity may be exchanged for – and it is a much shorter list. | 26 U.S.C. § 1035(a)(3) |
| The narrowest clause: long-term care may only go to long-term care. | 26 U.S.C. § 1035(a)(4) |
| TRAP: for tax year 2026 the code moved from box 7 to box 7a. | IRS, Instructions for Forms 1099-R and 5498 (2026), What’s New |
| The payer reports what it knows, not what you owe. | IRS, Instructions for Forms 1099-R and 5498 (2026), Table 1, code 1 |
| What the new box 7d is actually for. | IRS, Instructions for Forms 1099-R and 5498 (2026), Box 7d |
General consumer information, not tax, legal or financial advice. Every quotation above was read from the issuing authority’s own page on 2026-08-14 and forms and instructions change; your own facts decide the outcome, and anything consequential belongs with a preparer or the IRS rather than with a web page.