Form 5329: Additional Taxes on Qualified Plans and Other Tax-Favored Accounts

What Is Form 5329: Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts?

Form 5329 is an attachment to the federal income tax return that must be filed by taxpayers who owe a penalty related to their use of a tax-advantaged retirement savings plan such as an IRA or 401(k) or any other tax-advantaged plans such as the Health Savings Account (HSA) and the Coverdell Education Savings Account (ESA).

Common triggers for Form 5329 include taking an early distribution to a qualified retirement account or making excess contributions to it.

Form 5329 must accompany the taxpayer's annual tax return.

Who Must File Form 5329?

You must complete and submit Form 5329 to the IRS with your tax return if you:

• Received any early distributions from a qualifying tax-favored retirement account such as a 401(k) or individual retirement account (IRA).
• Made excess contributions to a retirement account, a health savings account (HSA), or an education savings account.
• Received taxable distributions from an education savings account.
  

Generally, you have to be at least age 59½ to withdraw money from a retirement account unless you are eligible for an exemption. Money withdrawn earlier is subject to a 10% penalty plus any income tax owed on the amount.

There also are maximum contribution limits, adjusted annually, to these accounts. Anything over that is an "excess contribution."

The table below denotes the annual maximums per account.

People 50 and older can also make catch-up contributions, which are additional contributions over and above the listed amounts, to retirement accounts. For instance, catch-up contributions for the following accounts are:

• $1,000 for individual retirement accounts (IRAs)
• $7,500 in 2023 and 2024 for 401(k)s
• $3,500 in 2023 for SIMPLE 401(k)s
  

Anything over and above these amounts is considered an overcontribution, which triggers a penalty.

You must also fill out Form 5329 if you don't take the required minimum distributions (RMD) which is the minimum amount of money that you can withdraw from these accounts after you reach a certain age. You must take RMDs by April 1 the year after you turn:

• 70½ if you reached that age before Dec. 31, 2019
• 72 if you reached that age between Jan. 1, 2020, and Dec. 31, 2022
• 73 if you reached that age after Jan. 1, 2023
  

Other Circumstances Requiring Form 5329

Other circumstances may require you to file Form 5329, including:

• When you receive a distribution from a retirement plan that meets an exception to the early distribution penalty but the exception is not indicated on the Form 1099-R or Form 1099-Q issued by the issuer or account custodian. In this case, you must complete Part l of Form 5329.
• If you receive a distribution from a retirement account that does not meet any exception to the penalty and if the issuer mistakenly indicates that an exception applies. The individual must complete Part l of Form 5329.
• When you receive a distribution from a college savings plan, such as a Coverdell education savings account, but it wasn't used for eligible education expenses, you don't meet an exception to the early distribution penalty. In this case, you should complete Part II of Form 5329.
  

Watch Out for Errors

The issuer may not always make the proper indication on the form. Let's assume that an individual received distributions via a substantially equal periodic payment (SEPP) program from the IRA. However, instead of using Code 2 in Box 7 of Form 1099-R, the issuer used Code 1, which means that no exception applies.

This could lead the IRS to believe the amount reported on Form 1099-R is not part of the SEPP. It will appear that the person has violated the SEPP program and now owes the IRS penalties plus interest on all past distributions that occurred as part of the SEPP.

Fortunately, the individual can rectify this error by filing Form 5329.

What Does Form 5329 Include?

You must include your personal details at the top of Form 5329, including:

• Your name
• Social Security number (SSN)
• Address
  

Form 5329 is divided up into several parts, which means you must complete the section(s) that apply to your circumstances as follows:

• Part I: Additional Tax on Early Distributions
• Part II: Additional Tax on Certain Distributions From Education Accounts and ABLE Accounts
• Part III: Additional Tax on Excess Contributions to Traditional IRAs
• Part IV: Additional Tax on Excess Contributions to Roth IRAs
• Part V: Additional Tax on Excess Contributions to Coverdell ESAs
• Part VI: Additional Tax on Excess Contributions to Archer MSAs
• Part VII: Additional Tax on Excess Contributions to Health Savings Accounts (HSAs)
  
• Part VIII: Additional Tax on Excess Contributions to an ABLE Account
• Part IX: Additional Tax on Excess Accumulation in Qualified Retirement Plans (Including IRAs)

Form 5329 must Form 1040: U.S. Individual Tax Return or Form 1040-SR: U.S. Tax Return for Seniors by the tax filing deadline or extension date (if you have one).

Keep in mind that you may be responsible for additional forms in certain circumstances. For instance, you must complete Form 8853: Archer MSAs and Long-Term Care Insurance Contracts if you're filling out Part VI. Or, you may need to file Form 8606: Nondeductible IRAs to determine the amount of the distribution that is subject to the early distribution penalty for Roth IRAs.

How to File Form 5329

You can fill out Form 5329 manually using the form from the IRS website. Once complete, submit it with your annual tax return and mail it to the IRS. The form can also be filled out electronically using tax preparation software or by using the services of a professional tax preparer.

The forms must be filed by the individual's due date for filing their tax return, including extensions. If the form is filed for a previous tax year, the form applicable to that tax year should be used.

Failure to use the form for the correct tax year may result in the penalty being applied to the wrong year.

You can download all pages of Form 5329 from the IRS website.

The Bottom Line

The IRS offers a number of long-term savings plans that help taxpayers save for retirement, for a child's college education, or for miscellaneous healthcare costs.

But every one of those accounts comes with rules that ensure they are used correctly and that the IRS gets the money it's due sooner or later.

Form 529 is primarily used to report instances of uses of one of these accounts that might not meet the rules.