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Instructions for Filing Form 5329: Additional Taxes on Qualified Plans Including IRAs & Other Tax-Favored Accounts

Saving is an imperative virtue during your line of occupation, but when you exceed your annual contributions limit, Form 5329 intervenes. This is a tax form used to compute the possible IRS penalties from several situations regarding retirement savings, health savings, and other tax-favored accounts. Form 5329 is also used to request a waiver on a penalty imposed regarding the IRA. 

What Is Form 5329

If you fail to file the required forms, you can be subjected to paying more taxes than required by the IRS. There is a 10% additional tax for IRA funds withdrawn before the age of 59½. This is unless you have attained the parameters of a retirement-plan early-distribution penalty exception. Read on to discover more about what is form 5329, who needs to file it, mechanisms of filing, etc. You can also check out the best tax relief companies to compare and get the best tax relief provider who meets your personal needs. 

Who Should File Form 5329?

In this section, we will look at who needs to file Form 5329 and the possible situations that may lead to a penalty. 

Early Distributions

Obtaining funds in an IRA or 401(k) account before age 59½ results in a 10% penalty. This is unless you meet penalty exceptions as discussed below:

  • Total or permanent disability.
  • Withdrawal of funds to accomplish an IRS levy.
  • Payment of medical expenses that surpassed 7.5% of your adjusted gross income. 
  • Payment of health insurance in case you are unemployed. 
  • A reserve military member in active duty of more than 179 days.

Penalties can also be avoided in case you are paying for higher education. In addition, first-time homebuyers can escape penalties if they withdraw up to $10,000 or $20,000 for married couples. 

You should also note that distributions on funds withdrawn from a 529 plan or Coverdell education savings account may lead to a penalty if you do not pay for designated qualified expenses. An exception can intervene if the account beneficiary gets a tax-free scholarship or educational assistance from other parties. 

The issuer, the IRA or ESA administrator, will note on Form 1099-R (For qualified plans and IRAs) or Form 1099-Q (For educational savings accounts and 529 plans) whether a penalty or an exception should accompany the amount distributed. If the distributed amount should be exempted, the issuer indicates on Box 7 of Form 1099-R. 

There are scenarios where the issuer may not indicate the status of the exception. You may rectify such an error by filing Form 5329. However, taking an early distribution requires completing part 1 or 2 for both qualified people for an exception and those who owe a penalty. 

When Is Form 5329 Due?

According to the IRS, individuals should complete Form 5329 if they do not take the required minimum distribution (RMD) from their account at a certain date annually. Form 5329 can be filed together with Form 1040 before the due date. 

Nonetheless, 5329 can be filed independently, which requires including your signature on page 1 and date on page 2 of the form. Filing Form 5329 for a previous year requires utilizing that specific year’s version of the form. 

The IRS indicates that all tax forms should be filed by the due date. This is normally on or before April 15. However, if you don’t have to file an income tax return, you can complete and file Form 5329 discretely. In the 2020 tax year, the form was required to be filed by the extended deadline of May 17, 2021. If you surpass the deadline, a failure-to-file penalty of 5% of the total amount of unpaid taxes is due for each month. 

If it is crystal clear that you owe the tax penalty after completing Form 5329, you will be required to pay when you file. Failure to do that, you will be subjected to a failure-to-pay penalty of half of 1% of the unpaid taxes. The penalty becomes active on the day after the tax filing deadline. 

People worried about Form 5329 due date can be aided by certified public accountants, agents, and other tax return preparers. They are located in cities and towns nationwide and offer tax help. These tax agents also disseminate information about tax forms and help you evade IRS tax violations and penalties. 

When looking for a tax professional, you should dwell on designing a retirement plan strategy that works to accomplish your goals. Most run numbers on a retirement calculator to gauge whether you are saving in a tax-advantaged plan.

How to File Form 5329

You first need to obtain tax Form 5329 from a government agency, a tax preparation service or download it from the IRS website. Then fill in your credentials, such as your address, name, and social security number. The following parts will guide you on how to file Form 5329:

Part I

entails Additional tax on early distributions. You will state any early distributions that you received. There is no need to indicate Roth IRA distributions as there is a section that will cover them later.  

In Line 2, indicate your early distributions exempted from additional taxes (Exceptions are stated on the form’s instructions). Differentiate between the first and second Line and indicate the figure on line 3. Then multiply the result by 10% and note this result on Form 1040. 

Part II

This is a section on Additional Tax on Certain Distributions from Education Accounts. When annual distributions surpass your adjusted qualified education expenses, this should be indicated in part 2. This is because adjusted expenses are on level standards to the total of qualified education expenses, excluding other tax-free aids that you receive.

Part III

Part 3 entails Additional Tax on Excess Contributions to Traditional IRAs. Excess contributions are taxed annually for the excess amount that remains in the IRA for each year. 

Part IV

It is a section on Additional Tax on Excess Contributions to Roth IRAs. It happens if you contribute excess than the limit stipulated by your Roth IRA. This is because one is eligible to contribute as per their income. Violation of these rules, that is, an ineligible or excess contribution, will subject you to a 6% penalty on the amount annually until you fix it. 

You can determine how much you have earned on the excess contribution by using the net attributable income (NIA) formula as stated below:

Net Income = Excess Contribution x (Adjusted closing balance – Adjusted opening balance)/Adjusted opening balance. 

Part V

This part is stipulated for Additional Tax on Excess Contributions to Coverdell ESAs.

Part VI

It entails Additional Tax on Excess Contributions to Archer MSAs. This is if you contributed more to your Archer MSA than permitted. It also applies if you had an amount on Line 41 explanation of the withdrawal. You should also make other necessary changes to the amended return.

Part VII

It’s the Additional Tax on Excess Contributions to Health Account Savings Account (HSAs) section. This is if you or someone on your behalf had an excess contribution to your HSA account than the required threshold. In this part, you should enter the amount only if the amount is zero in line 49 of Form 5329. 


Involves Additional Tax on Excess Contributions to ABLE Accounts. If the contributions on your ABLE account is more than the limit, you may owe tax on the net income. You are required to enter the excess amount without including ABLE rollovers or program-to-program transfers when figuring your excess contributions. 

In addition, you are not subjected to a tax on your ABLE account if the ABLE program refunds the contribution, including outright net income from the contribution. 

Part IX

Part 9 involves Additional Tax on Excess Accumulation in Qualified Retirement Plans (Including IRAs). You will be subjected to taxation if you didn’t get the least stipulated distribution from your qualified retirement plan. This includes IRAs or an approved section 457 deferred compensation plan.

It accounts for 50% of the excess accumulation, which is the difference between the required distributed amount and the actual distributed amount. 

Finally, you should sign and date the form and send it to the IRS accompanied by a money order or a check for the tax amount to be paid. 

IRS Form 5329 Expectations

Below are the IRS codes that are normally used to distinguish Form 5329 exceptions:

  • 01: Distribution for a military individual who seized after the year he/she attained 55 years.
  • 02: Distributions of equal sequential payments related to an individual’s life or joint lives. These payments are also designated for life or life expectancy. It also applies to your beneficiaries.
  • 03: Distributions on total or permanent disability.
  • 04: Distributions as a result of death. They do not align with modified endowed contracts. 
  • 05: Distributions on medical costs that exceed 7.5% of an individual’s adjusted gross income. It can also stand in for unreimbursed medical expenses. 
  • 06: Distributions on approved retirement plan under qualified domestic relations order. 
  • 07: Distributions approved by IRA for people who lost their occupation for 12 consecutive weeks covering health insurance expenses. 
  • 08: Distributions for higher education costs. It has no limit on the amount you can take, but it must be paid to an eligible institution. 
  • 09: Distributions for individuals acquiring their first home of up to $10,000.
  • 10: Distributions of funds to accomplish an IRS levy. 
  • 11: Distributions on a military reservist in more than 179 days active duty. 
  • 12: Used when more than one exception is applicable. 

Special Circumstances and Considerations When Filing 5329

Excess Contributions Penalty

Contributions are limited to $6,000 for a Roth IRA or $7,000 if at least age 50 by year-end for a Traditional IRA. This is for both 2020 and 2021, while limits for contributions per year for each beneficiary in ESAs are designated at $2,000.

When contributions surpass the stated amount, they must be eliminated from the account before the tax filing deadline. This also includes the extensions for IRAs and by June 1 of the next year for ESAs. Failure to remove the amount on or before the deadline will result in a 6% excise tax. This applies to the excess amount that remains in the account for each year. 

You will be required to fill parts 3, 4, 5, 6, 7, or 8 on instructions for 5329 Form to compute the penalty. Different accounts have varying sections that require to be filled. Hence, you will only fill out the sections that align with your account. For instance, the Traditional IRA requires part 3 while Roth IRA is filled in part 4. According to 2021, other contributions are articulated below:

  • $19,500 to a 401 (k), 403 (b), or 457 plan (plus an extra $6,500 in catch-up contributions for people aged 50 and above)
  • $2,000 to a Coverdell educational savings account.
  • $15,000 to an ABLE account.
  • $3,650 to an HAS account for individuals or $7,300 to HAS families. 

Excess Accumulation Penalty

As an owner of a retirement account, you should take the required minimum distribution amounts by the stated beginning date and for each subsequent year. 

By 2020, the minimum year to commence taking required minimum distribution is 72 years. Before that, it was 70½ years. You are required to withdraw the total RMD each subsequent year in reference to the contemporary RMD calculation. 

There is a hefty excess-accumulation penalty to account owners who fail to remove the RMD amount. The IRS mandates 50% of the amount required to meet the RMD requirement. 

Take an instance where your RMD from your Traditional IRA is $2500 for the year, and you distribute $1,000 by the deadline, you will owe the IRS a $750 excess accumulation penalty. This is accounted for by the 50% of the $1,500 you failed to distribute. 

The amount is computed on an IRS worksheet. You can add the balances in all Traditional IRAs and collect the money from one or more accounts for a Traditional IRA. However, this is not the same for others, such as the 401 (k) and 403 (b), as you distinctly compute and withdraw the amounts. 

Paying Penalties and Filing Forms

An IRA custodian or your plan trustee does not have permission to pay the penalty for you. Thus, when submitting a distribution request, you should indicate that amounts are withheld only for federal and state tax. 

The penalty payments should be made to the IRS directly. They should also be incorporated on your tax return or applicable tax forms. Additionally, the forms must be completed by the individual’s due date stipulated for filing their tax return, including the extensions. 

If the filing is being conducted for a previous year, you should use a form eligible for that particular year. This is because a penalty may be imposed for using a for the wrong year. 

The required completion and filing of all application forms is an imperative section in the tax filing activity. This may require consultation and advice from a tax professional when completing and filing the tax forms. 

Bottom Line

Retirement savings, health savings, and other tax-favored accounts are accompanied by taxation, which requires completing and filing Form 5329. According to instructions of filing out form 5329, you are required to provide information regarding your address, signature, and social security number when filling the form. This will help you evade taxes imposed when receiving retirement benefit distribution before the age of 59½ or if you fail to take the required minimum distribution from the retirement account.


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