Form 5329

If you are under 59-year-old and have a retirement plan or education savings account (ESA), you need to file Form 5329. This form is called “Additional Taxes on Qualified Retirement Plans (including IRAs) and Other Tax-Favored Accounts,” and indicates whether you owe the IRS the 10% early-distribution or other penalty. If you aren’t sure how to fill out this form, we’ve created some guidelines to help.

Form 5329 Instructions

1. Get tax Form 5329 from a government agency, a tax preparation service, or you can download it from the IRS website. Once you have the proper form, fill in your personal details including your name, address, and social security number.

1. Complete Part I, which is Additional Tax on Early Distributions. Declare any early distributions you received as your income. You don’t need to include Roth IRA distributions here; they will be included later. Write in your early distributions that are not applicable for additional taxes (exceptions are on the instructions for the form) on Line 2. Find the difference between line 1 and line 2 and write that result on line 3, and multiply that result by 10%. Be sure to write this amount on Form 1040. The 10% may become 25% if any part of Line 3 was from a simple IRA. Consult the instructions on the form for clarification here.
2. Complete Part II, which is Additional Tax on Certain Distributions from Education Accounts. Fill this in if you stated your income amount on Form 1040.
3. Complete Part lll, which is Additional Tax on Excess Contributions to Traditional IRAs, if you added more money than allowed to your traditional IRAs.
4. Complete Part lV, Additional Tax on Excess Contributions to Roth IRAs, if you contributed more than allowed to your Roth IRA.
5. Complete Parts V, Vl, and Vll if you had extra contributions to an educations account, a health savings account, or a medical savings account.
6. Complete Part Vlll, Additional Tax on Excess Accumulation in Qualified Retirement Plans, if you did not receive the minimum required distribution from the qualified retirement plans. The tax you owe is 50% of the difference between the minimum necessary distribution and the amount you actually got.
7. Sign and date the form. Send it in to the IRS with a check or money order for the tax amount due.

Form 5329 Exceptions

There are some exceptions to early withdrawal penalty codes on Form 5329.  Use the corresponding number to indicate which exception you are claiming:

• 01 – Distributions from a qualified retirement plan (not an IRA) after reaching age 55 and separating from employment.
• 02 – Distributions made as part of a series of equal periodic payments, at least annually. These distributions must be for your life or life expectancy, or the joint lives or joint life expectancies of you and your beneficiary.  If the distributions are from an employer plan, payments must begin after your retirement.
• 03 – Distributions due to total and permanent disability.
• 04 – Distributions due to death.
• 05 – Qualified retirement plan distributions that were used to pay unreimbursed medical expenses, or exceed 10% of your adjusted gross income (does not require you to itemize your deductions to claim this exception).
• 06 – Qualified retirement plan (not IRA) distribution under a qualified domestic relations order.
• 07 – IRA distributions made to individuals who were on unemployment for 12 consecutive weeks to pay for health insurance premiums.
• 08 – IRA distributions made for college expenses.
• 09 – IRA distributions made to buy your first home (up to $10,000).
• 10 – Distributions are due to an IRS levy on the qualified retirement plan.
• 11 – Qualified distributions to reservists while serving on active duty for a minimum of 180 days.
• 12 – Use this code if more than on exception applies (see Form 5329 instructions).

Also, if you faced financial difficulties resulting from a federally declared disaster, you can exempt the 10% early distribution tax without filing tax form 5329.

Form 5329 Waiver Example

If you are older than 70 1/2, you need to withdraw an IRA-required minimum distribution (RMD) by the applicable deadline, which is normally the end of each calendar year.

Failure to take all or part of the RMD by the deadline results in a penalty of 50% of the shortfall. The IRS can waive this penalty on an individual basis, only if the shortfall was due to reasonable error and reasonable steps are being taken to correct the shortfall. Reasonable causes for missing the RMD include serious illness, mental incapacity, or an error made by the bank. You will need to file a request for a waiver of this penalty.

IRS Form 5329 Missed RMD

Prepare and file Form 5329 for each year you had a shortfall. If the income tax return for that year has not yet been filed, Form 5329 can be attached to that return. For years when the income tax has already been filed, send in 5329 as a separate return. Take your missed RMD as soon as possible, so you can tell the IRS in the explanation statement that it has now been taken. If you have a 1099-r (the form for distributions from pensions, annuities, retirement plans, IRAs, or insurance contracts of at least $10) to report, then the RMD question in the interview will go to the form 5329 interview, if you indicate that the RMD wasn’t taken.

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