Which distribution code applies when the account holder has passed away?

When an account holder passes away, the appropriate distribution code to use is Distribution Code 4. This code is specifically designated for distributions made to a beneficiary due to the death of the account holder. It signifies that the funds are being distributed as part of the transaction that follows the account holder's death, which typically involves settling the estate or transferring assets to the designated beneficiaries.

Distribution Code 1 refers to an early distribution from an IRA or retirement plan that is subject to penalty and does not account for the circumstances under which an account holder passes away. Similarly, Distribution Code 2 is for an early distribution but with an exception to the penalty, and it does not apply to death-related distributions. Distribution Code 3 is utilized for disability distributions, which is another specific situation unrelated to the account holder's death. Therefore, Distribution Code 4 is the correct label for these scenarios.