1099-R Box 7 Distribution code is 1 instead of 2 for Backdoor Roth conversion - will this trigger audit?

Thanks for the info. Do you think this situation would increase my audit risk though? I've heard the IRS computer systems flag mismatches between what's reported on 1099s and what shows up on returns.

The possibility exists, but it's relatively low risk. The IRS systems are generally sophisticated enough to recognize Roth conversions reported on Form 8606, even with a distribution code "1" on the 1099-R. While document mismatches can sometimes trigger review flags, in this specific case, it's a common enough situation that it typically doesn't cause problems. If you want to eliminate even this small risk, requesting a corrected form from Fidelity would be your best option.

Does this tool actually connect with tax software or do you just upload your docs separately? My situation is slightly different - I did a rollover from a 401k to traditional IRA and then converted to Roth. Worried about getting the forms right.

Sounds interesting but I'm skeptical. Can this tool actually predict if you'll get audited or is it just giving general advice like "you should be fine"? Because my accountant already told me that but I still feel nervous about it.

The tool works by analyzing your uploaded documents, so you don't need to connect it directly to your tax software. You can use the analysis alongside whatever filing method you prefer. For your 401k to IRA to Roth conversion, it would definitely help identify any documentation issues across those multiple steps. As for audit prediction, it doesn't claim to predict audits with certainty, but it does highlight specific discrepancy patterns that commonly trigger automated reviews. It's more sophisticated than just saying "you should be fine" - it explains the exact reconciliation processes the IRS uses for each type of mismatch. That's what gave me more confidence than just my accountant's general reassurance.

How exactly does this Claimyr thing work? Sounds sketchy to me. Are they just calling on your behalf or something?

Yeah right, nothing gets you through to actual people at financial institutions these days. I've spent literal DAYS of my life on hold with various companies. No way this actually works as advertised.

It's not sketchy at all - they don't call on your behalf. The system basically navigates the phone trees and waits on hold for you, then calls you once a representative is ready to talk. You're the one who actually speaks with the customer service rep. It absolutely works as advertised. I was extremely skeptical too until I tried it. I had been trying to reach the IRS for three days with no luck - calls kept dropping after 2+ hours on hold. Used Claimyr and got connected in about 35 minutes without having to actively wait on the phone. The technology behind it is pretty straightforward once you understand how it works.

Thank you so much for this insight! This is exactly what I was hoping to hear from someone with real experience. I'll definitely keep all my transaction records just in case, but I feel much better about not needing to wait for a corrected form. One last question - when I file with TurboTax, should I just enter the 1099-R exactly as is with code "1" and then make sure the 8606 is correct? Or is there somewhere I need to indicate this was a conversion?

Yes, enter the 1099-R exactly as it appears with code "1" - don't try to change it to match what you think it should be. The important part is making sure that when TurboTax guides you through the 8606 portion, you correctly indicate this was a Roth conversion. The software should ask you questions about the purpose of the distribution, and you'll want to specify it was for a Roth conversion. TurboTax will then properly complete Form 8606 with Line 18 showing zero taxable amount. This is what tells the IRS system that no 10% penalty applies, regardless of the distribution code on the 1099-R.

Code "J" is actually correct for your situation. It specifically indicates an early distribution from a Roth IRA that is not subject to penalty (due to it being a qualified distribution). This is different from OP's situation with a Traditional to Roth conversion. Distribution codes can vary based on the specific type of transaction and account types involved. For a backdoor Roth where you contribute to a Traditional IRA and then convert to Roth, you'd typically see code "2" (or sometimes "1" as in OP's case) for the conversion step. But for distributions from Roth IRAs themselves, different codes apply.