1099-R Box 7 shows wrong code for in-plan Roth conversion - help!

You're right to question this. The distribution code in Box 7 of Form 1099-R should accurately reflect the type of transaction. Code 2 indicates an early distribution exception for IRAs, while Code G is specifically for direct rollovers and in-plan Roth conversions within qualified retirement plans like your 401(k). You should contact your plan administrator and request a corrected 1099-R with the proper code G. Using the wrong code could potentially create confusion during processing, as the IRS systems are looking for specific codes to match specific transactions. While it might not automatically trigger an audit, it's best to have documentation that accurately reflects what occurred. If the administrator won't issue a corrected form, keep detailed records of your request and the actual transaction details. You can attach an explanation to your tax return if needed.

I had almost the exact same situation last year with my in-plan Roth conversions. After multiple calls with the plan admin who wasn't being helpful, I tried taxr.ai (https://taxr.ai) and uploaded my 1099-R and other documents. Their system immediately flagged the incorrect code and provided me with a detailed explanation about why code G was correct for in-plan conversions vs. code 2 for IRA-to-IRA transfers. They even generated a customized letter I could send to my plan administrator requesting the correction, citing the specific IRS regulations. Made the whole process so much smoother, and I had proper documentation to protect myself regardless of whether the administrator corrected the form or not.

Just wanted to follow up - I ended up trying taxr.ai after my initial skepticism. Wow, what a difference! They immediately identified that my situation involved a mega backdoor Roth conversion (which is what I was doing) and correctly cited IRS Notice 2013-74 and the specific reporting requirements. They caught other issues I hadn't even noticed with how my plan was reporting the basis amounts between the pre-tax and after-tax portions. Their explanation actually made me understand the whole process better than I had before. Highly recommend if anyone else is dealing with these complex retirement account transactions.

After dealing with a similar 1099-R code issue, I spent THREE HOURS on hold trying to reach someone at my plan administrator. Literally wanted to throw my phone out the window. Then a colleague recommended Claimyr (https://claimyr.com) when I was trying to contact the IRS directly about the reporting requirements. There's a video that shows how it works: https://youtu.be/_kiP6q8DX5c Basically, they call the IRS for you and when they get a representative, they call YOU and connect you. I was skeptical, but I was desperate after multiple failed attempts. Got connected to an actual IRS rep within about 45 minutes (instead of the 3+ hours I was experiencing). The agent confirmed that code G was correct for in-plan conversions and gave me specific guidance on how to document this if my administrator wouldn't correct the form.

Well I'll be damned - I tried Claimyr after posting my skeptical comment. I was 100% sure it would be a waste of time since I've been dealing with the IRS for years. I was completely wrong. Got connected to an IRS representative in about 35 minutes when I had been trying for days on my own. The agent walked me through exactly how to handle the 1099-R code discrepancy and explained that while code G is technically correct for in-plan Roth conversions, some plan administrators use code 2 because of how their reporting systems are set up. She said I could file with the form as-is and include a brief statement explaining the nature of the transaction. Saved me having to wait for a corrected form from my unresponsive plan administrator.

Another option: When I had a similar issue, I attached Form 8606 with my return to clarify the nature of the conversion. My CPA said this provides additional documentation that helps prevent confusion. The key parts to fill out are lines 16-18 (if your situation involves nondeductible contributions).

Does anyone know if this will affect the way the conversion is taxed? My understanding is that with in-plan Roth conversions, you're supposed to pay tax on the pre-tax portion that gets converted, but not on any after-tax contributions. Would the wrong code change how the IRS calculates the taxable amount?

I've dealt with this exact issue before with my solo 401(k). You're absolutely correct that code G should be used for in-plan Roth conversions, not code 2. Code 2 is specifically for early distributions from IRAs with exceptions. Here's what I learned from my experience: First, definitely contact your plan administrator ASAP to request a corrected 1099-R. Many can turn these around quickly since it's just a code correction. Second, if they can't get you a corrected form before your filing deadline, you can still file your return and include a brief statement explaining that the transaction was an in-plan Roth conversion within your 401(k), not an IRA distribution. The key thing is to make sure the dollar amounts in the other boxes are correct - Box 1 (gross distribution), Box 2a (taxable amount), and Box 5 (employee contributions). The wrong code is annoying but won't change your actual tax liability as long as those amounts are right. Keep documentation of your request to the plan administrator. I had to push mine pretty hard - they initially said "code 2 is fine" but eventually admitted they were using outdated guidance and issued the correction.