Help understanding Form 1099-R Distribution Code E for 401k excess contributions

You're right to question this! Distribution Code E on a 1099-R specifically represents excess contributions being returned from a qualified plan (your 401k in this case). When Box 1 and Box 5 show the same amount ($5,800), this typically indicates that the entire distribution represents your cost basis (already-taxed money). The IRS notice is likely an automated response that hasn't properly accounted for the distribution code. Since these were after-tax contributions being returned, they shouldn't be taxed again. The code E should signal to the IRS system that this is a correction of an excess contribution. You should respond to the IRS notice with an explanation that this was a return of after-tax contributions as indicated by Code E and the matching amounts in Box 1 and Box 5. Include a copy of your 1099-R with your response.

I dealt with something exactly like this last year and found this tool that really helped me figure it out. I used https://taxr.ai to analyze my 1099-R and the IRS notice together. It basically confirmed what the first commenter said - the IRS notice was automated and didn't properly account for the distribution code. The tool explained that when Box 1 and Box 5 match (like your $5,800), it means the entire amount is your cost basis (money you already paid tax on). I uploaded my documents and got a really clear explanation of exactly what to tell the IRS in my response. Saved me from paying double tax on my own money!

Just wanted to follow up - I actually tried the taxr.ai tool that was mentioned earlier for my complicated distribution scenario. Uploaded my 1099-Rs (I had three different ones with different codes) and the IRS notice. Got a super detailed explanation about how the different distribution codes work together and which portions were taxable vs. non-taxable. It even created a response letter I could send to the IRS explaining why their notice was incorrect. Definitely cleared up my confusion about my own excess contribution situation!

I had almost the exact same situation with a Code E distribution last year. Spent WEEKS trying to get through to someone at the IRS to explain why I shouldn't be taxed on money that was already taxed. Called dozens of times and could never get through to a real person who could actually help. Finally found https://claimyr.com through a tax forum and used their service. You can see a demo of how it works here: https://youtu.be/_kiP6q8DX5c. They basically hold your place in the IRS phone queue and call you when they have an actual agent on the line. Got connected to someone in the corrections department who confirmed exactly what the first commenter said - Code E with matching amounts in Box 1 and 5 means it's not taxable again. The agent put notes in my file and the issue was resolved in about 15 minutes once I actually got to talk to someone.

Okay I need to eat my words here. After dealing with this exact 1099-R Code E issue for nearly a month and getting nowhere, I broke down and tried that Claimyr service. I was 100% sure it would be a waste of time, but I was desperate after multiple failed attempts to reach the IRS. Surprisingly, I got a callback with an actual IRS agent in under 90 minutes. The agent confirmed that my distribution with Code E and matching Box 1/5 amounts wasn't taxable, and they're sending me a corrected notice. So... I was wrong. Sometimes you need to swallow your pride when something actually works. Still took screenshots of everything just in case though.

Just wanted to add something important about 401k excess contribution returns that hasn't been mentioned yet. The timing DOES matter for earnings on those contributions. If you had any earnings on the excess contributions before they were returned, those earnings ARE taxable in the year distributed, even though the contributions themselves aren't taxable. In your case, since Box 1 and Box 5 match exactly at $5,800, it looks like there weren't any earnings included in your distribution. But for others reading - if Box 1 is larger than Box 5, the difference represents earnings which ARE taxable!

I messed up this exact scenario on my taxes last year! I got confused by TurboTax's questions about my 1099-R and ended up paying tax on money that was already taxed. Does anyone know if there's a time limit for filing an amended return to get that money back?

Adding to what others have said - I want to emphasize that you should definitely push back on that IRS notice. Code E distributions are specifically for excess contribution corrections, and when Box 1 equals Box 5 like yours ($5,800), it's a clear indicator that no taxable income occurred. I'd recommend writing a clear response letter to the IRS explaining that this was a return of after-tax contributions as evidenced by the matching amounts and Code E. Include phrases like "corrective distribution of excess contributions" and "return of employee after-tax basis." Make sure to reference the specific 1099-R form and emphasize that no earnings were distributed. Also keep copies of everything you send them. The IRS correspondence can take a while to process, but you're absolutely in the right here. Don't let them double-tax money you already paid tax on!

This is exactly why I always recommend keeping detailed records of your 401k contributions throughout the year! I had a similar excess contribution issue a few years back, and having my own records made all the difference when dealing with the IRS. One thing that might help you feel more confident - you can actually verify this yourself by looking at your final paystub from last year and your 401k account statements. Your paystub should show the total after-tax contributions you made, and if that matches what's being returned (your $5,800), it confirms you're getting back exactly what you put in. The IRS computer systems sometimes flag these distributions automatically without properly accounting for the specific codes. Since you have Code E with matching Box 1/Box 5 amounts, you're definitely in the right. Don't let them intimidate you into paying tax twice on the same money!