1099-R Code 7 vs. Code G for SEP-IRA to SIMPLE-IRA rollover

Submitted by Dan Simonds on Tue, 2019-04-02 17:27

Client over age 71 owned a SEP-IRA and SIMPLE-IRA with one custodian and to simplify and eliminate one IRA fee she moved her SEP into her SIMPLE (held 2+ years). The custodian warned in advance that they could not process as a Transfer but would instead require a Rollover with a 1099-R issued, which is how it played out. The assets actually moved in-kind within one day from the SEP to the SIMPLE with the same custodian with no checks or securities issue to the client.

The 1099-R shows the shows the Gross Distribution and the Taxable Amount (boxes 1 and 2) with the same amount, which was the full value of the SEP. 2b has an X for Taxable Amount Not Determined and an X for Total Distribution. The Distribution Code is 7.

The client’s CPA wants the 1099-R corrected with Code G added and Code 7 removed but the custodian does not want to do that. Also there were no other rollovers with 1099s issued within one year either direction.

Do you know if it is important to have Code G used in place of Code 7 and if it is worth pressing the custodian to make the change? The CPA is concerned Code 7 will cause the entire amount to be taxable, which will then likely take a lot of back and forth with the IRS to resolve. Thank you very much.



Submitted by David Mertz on Tue, 2019-04-02 17:43

  • The CPA is incorrect.  The custodian is not permitted to use code G.  Code G is only for a rollover to or from a qualified retirement plan like a 401(k), not for any movement of funds between IRAs.
  • It makes no sense that the custodian could not do this as a non-reportable trustee-to-trustee transfer.  In fact, your description suggests that this actually *was* done as a trustee-to-trustee transfer if the shares were never in the client’s name.  If this was truly processed as a trustee-to-trustee transfer, the correction would be for the custodian to issue a corrected code 7 Form 1099-R showing $0 distributed.

Submitted by Alan - IRA critic on Wed, 2019-04-03 02:16

Must be a small IRA custodian to not know this, whether they are the actual 1099R issuer, or mis coded the transaction resulting in the issuer getting incorrect data. Issuing the 1099R could also have RMD and excess contribution implications if the IRS acquires the dates of these transactions.

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