Updated September 28, 2026. Quick answer: code E means your employer’s plan corrected an excess annual addition under section 415 under the IRS’s Employee Plans Compliance Resolution System. The IRS says directly that this kind of distribution is not eligible for rollover and is not subject to the 10% additional tax.
What the IRS tells the payer
From the current instructions, code E is “Distributions under Employee Plans Compliance Resolution System (EPCRS)”. The full instruction text reads: “See Distributions Under Employee Plans Compliance Resolution System (EPCRS), earlier.” It may be used with: None.
What EPCRS is correcting
The fuller EPCRS explanation in the 1099-R instructions states: “Distributions to correct a section 415 failure are not eligible rollover distributions although they are subject to federal income tax withholding under section 3405. They are not subject to social security, Medicare, or Federal Unemployment Tax Act (FUTA) taxes. In addition, such distributions are not subject to the 10% additional tax under section 72(t).” That is an explicit, unconditional exemption from the additional tax, not something you need to claim on Form 5329.
Which line it drives
The distribution of elective deferrals corrected under EPCRS is fully taxable in the year distributed and is reported in boxes 1 and 2a; a return of employee after-tax or designated Roth contributions plus earnings splits between box 1, box 2a for the earnings, and box 5 for the returned contributions. Where it goes on Form 1040 is not settled by the box numbers: the 2025 Instructions for Form 1040 send corrective distributions from a retirement plan of excess elective deferrals and excess contributions (plus earnings) to line 1h rather than lines 5a and 5b, and distributions from an IRA go on lines 4a and 4b.
Common mistakes
- Assuming a code E distribution is an ordinary early distribution subject to the 10% tax. The instructions exempt it explicitly.
- Trying to roll a code E distribution over. The instructions say it is not eligible for rollover.
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 8, and code P.
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) and the 2025 Instructions for Form 1040 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
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 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.