1099-R Code D: Nonqualified Annuity Payments

Payments from an ordinary commercial annuity, not a retirement account; pairs with a number showing your status.

What the IRS instructions say

Official meaning, from the Instructions for Forms 1099-R and 5498 A distribution from a plan or arrangement outside the retirement plan sections (401(a), 403, 408, 408A, 457(b)); may be subject to the net investment income tax under section 1411.

Is it taxable, and does the 10 percent penalty apply?

The earnings portion in Box 2a is ordinary income, and because the contract sits outside the retirement plan rules, that income can also count toward the 3.8 percent net investment income tax. Your own investment in the contract comes back untaxed under the annuity exclusion rules, and the 10 percent additional tax under section 72(q) can still apply to taxable amounts taken before 59 and a half.

Worth knowing: D is the flag that the contract is NONQUALIFIED, an annuity bought with after tax money outside any retirement plan. That is why this is the one code family where the net investment income tax enters the picture.

Combinations you might see

Box 7 can carry two codes. With code D, the pairings mean:

1D / 2D / 3D / 4D / 7D: paired with your status, early, early with an exception, disability, death, or normal
DC: annuity payments that are also reportable death benefits

If this code looks wrong

The IRS matches Box 7 against your return, so start with the payer: request a corrected 1099-R, which is the IRS's standing instruction for incorrect forms. No corrected copy by the end of February? The IRS can contact the payer for you, and Form 4852 substitutes as a last resort. Remember that an indirect 60-day rollover is correctly coded 1 or 7, because the payer cannot see the redeposit; direct rollovers should show G or H, as our rollover guide explains before the paperwork ever gets cut.

← All 1099-R Box 7 codes

Sources: IRS Instructions for Forms 1099-R and 5498; IRS Tax Topics 558 (early distributions), 413 (rollovers), and 154 (incorrect forms). Verified July 2026.

General educational information, not tax advice. Your distribution's taxation depends on your facts; consult a qualified tax professional. ClearChoiceRadar is not affiliated with the IRS or any government agency.