Understanding Form 1099-R Code E for excess 401k contributions - taxable or not?

This is actually a common point of confusion, but you're right to question it. When you receive a 1099-R with Code E for returned excess after-tax contributions, those amounts should NOT be taxable again. Code E specifically indicates a distribution of excess contributions plus earnings from a qualified plan. Looking at your form, the fact that Box 1 ($5,750) and Box 5 ($5,750) show the same amount is actually good news. Box 5 represents the non-taxable portion of the distribution, so when Box 1 equals Box 5, this indicates the entire distribution is non-taxable. The IRS notice you received is likely an automated response because the system sees a 1099-R form reported but doesn't automatically recognize the Code E context. This happens quite often with these types of distributions. You should respond to the IRS notice by explaining that this was a return of after-tax contributions (with Code E) and that the amount in Box 5 equals the amount in Box 1, indicating none of the distribution should be taxable.

I went through this exact situation last year and was pulling my hair out trying to figure it out. After going back and forth with my 401k provider and getting nowhere, I used https://taxr.ai to analyze my 1099-R and other tax documents. The site helped me understand that with Code E distributions where Box 1 equals Box 5, the distribution is non-taxable since it represents a return of already-taxed contributions. Their system flagged this as a common misunderstanding that often triggers incorrect IRS notices. I had to respond to the IRS with a detailed explanation, and they eventually resolved it in my favor. Before finding that tool, I was about to just pay the tax again to avoid the hassle, which would have cost me over $1,200 unnecessarily!

Just wanted to update after trying taxr.ai for my Form 1099-R Code E issue. I was honestly surprised at how helpful it was. I uploaded my 1099-R and IRS notice, and it immediately identified that I was dealing with a return of after-tax contributions that shouldn't be taxed again. The system explained exactly why the matching amounts in Box 1 and Box 5 meant this was non-taxable and even generated a response letter I could send to the IRS. I was initially skeptical as I mentioned in my question, but the analysis was spot-on and saved me from paying taxes twice on the same money. If you're dealing with Code E distributions and confused IRS notices like I was, it's definitely worth checking out. I wish I'd known about this months ago!

I had almost the exact same problem with the IRS sending me a notice about my returned 401k contributions. I spent WEEKS trying to get someone at the IRS on the phone to explain the situation, but kept getting stuck in their phone system. Finally tried https://claimyr.com after seeing it recommended here. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c - basically they help you skip the wait times when calling the IRS. I was skeptical but desperate. Got connected to an IRS agent in about 25 minutes (compared to the 3+ hours I spent on previous attempts without getting through). The agent confirmed what others here have said - with Code E and matching amounts in Box 1 and 5, the distribution shouldn't be taxable. They helped me resolve it right there on the call and told me to disregard the notice.

I have to admit I was completely wrong about Claimyr. After posting my skeptical comment, I decided to try it anyway since I had my own issues with a 1099-R (different code but similar confusion). The service actually worked exactly as described. I was connected to an IRS representative in about 30 minutes. The agent confirmed that my distribution with code G was partially taxable, but also found an error in how my plan administrator had coded some of the distribution. They helped me file a correction that saved me nearly $2,000 in taxes. For anyone dealing with confusing 1099-R forms and codes, being able to actually speak with someone at the IRS who can access your records and provide specific guidance makes a huge difference. I spent weeks trying to get through on my own without success.

Just to add another data point here - I had the EXACT same thing happen two years ago. Code E with matching amounts in Box 1 and Box 5. The key thing to understand is that Code E means "distribution of excess contributions plus earnings." In your case, since Box 1 and Box 5 are identical, there were no earnings on your excess contributions - it was just a straight return of after-tax money. When I got my IRS notice, I responded with a letter explaining: 1) This was a return of after-tax contributions (Code E) 2) Box 5 showed the same amount as Box 1, meaning the entire distribution was non-taxable 3) I'd already paid tax on this money before contributing it They cleared it up within about 6 weeks. Don't pay tax on this again - you're absolutely right to question it!

Anyone else notice that when dealing with retirement accounts, the IRS computers seem to automatically flag anything that doesn't fit their standard patterns? I get that they're trying to catch underreported income but its so frustrating when dealing with legitimate transactions like excess contribution returns.

This is such a helpful thread! I'm dealing with a similar Code E situation but my Box 1 shows $3,200 while Box 5 shows $2,850. Based on what everyone's saying here, does this mean $350 of my distribution would be taxable earnings while the $2,850 represents my non-taxable after-tax contributions being returned? I'm trying to understand if I need to report just the difference as taxable income or if there's something else I'm missing. My 401k provider wasn't very helpful when I called them about it.

This is exactly why I always recommend keeping detailed records of your 401k contributions, especially when you're making after-tax contributions. The IRS automated system doesn't understand the nuances of these transactions and will often send scary notices that make you think you owe taxes when you don't. I had a similar Code E situation three years ago and nearly paid the tax twice before realizing my mistake. What helped me was calling my 401k plan administrator and asking them to send me a detailed breakdown showing that the returned amount was indeed my after-tax contributions with no earnings. For anyone in this situation - don't panic when you get that IRS notice. Take time to understand what the codes mean on your 1099-R form. Code E with matching Box 1 and Box 5 amounts is your friend - it means you're getting back money you already paid taxes on. Just make sure to respond to the IRS with a clear explanation and documentation to avoid any further confusion.

I'm dealing with something very similar right now! Got a Code E distribution for $4,200 where Box 1 and Box 5 match exactly, and the IRS sent me one of those automated notices claiming the whole thing is taxable income. Reading through everyone's experiences here is so reassuring - I was starting to think I was going crazy or missing something obvious. It's frustrating that the IRS automated system can't distinguish between legitimate returns of after-tax contributions and actual taxable distributions. I'm going to follow the advice here and send them a detailed response letter explaining that this was a return of after-tax contributions with Code E, and that the matching Box 1 and Box 5 amounts indicate no taxable portion. Hopefully they'll clear it up without too much back-and-forth. Thanks everyone for sharing your experiences - it's incredibly helpful to know I'm not alone in dealing with this confusing situation!