Form 5329: Additional Taxes on Qualified Plans Definition

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

Form 5329: Additional Taxes on Qualified Retirement Plans (including IRAs) and Other Tax-Favored Accounts is a tax form that is filed by taxpayers to indicate whether they owe the Internal Revenue Service (IRS) the 10% early-distribution or another penalty on a retirement plan or education savings plan. Common triggers for Form 5329 include receiving early distributions and making excess contributions to qualified retirement accounts. Form 5329 must accompany a taxpayer's annual tax return.

Who Can File Form 5329?

There are several circumstances that would lead you to file Form 5329. For the most part, you must complete and submit this form to the IRS with your tax return if you:

• Received any early distributions from a qualifying tax-favored account, such as a 401(k) or IRA
• Made contributions in excess of the annual limit to a qualifying tax-favored account

You generally cannot take any money out of your retirement accounts before the age of 59½. Anything that is withdrawn before that age is considered an early distribution. Similarly, you are not allowed to contribute over a certain amount to any retirement account based on the annual limits published by the IRS. 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. For instance, catch-up contributions for the following accounts are:

• $1,000 for individual retirement accounts (IRAs)
• $7,500 in 2023 ($6,500 in 2022) for 401(k)s
• $3,500 in 2023 ($3,000 in 2022) 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 (RMDs), 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

There are other circumstances that 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

Sometimes, the issuer may not make the proper indication on the form. Say, for instance, 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 is able to rectify this error by filing Form 5329.

What Information 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)

The information on Form 5329 must be reported on and it must accompany 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. Similarly, you may need to file Form 8606 to determine the amount of the distribution that is subject to the early distribution penalty for Roth IRAs.

How to File Form 5329

Form 5329 can be filled out 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 tax preparer, such as a tax professional or accountant. Using a tax professional may reduce or eliminate the possibility of error and additional penalties.

The forms must be filed by the individual's due date for filing their tax return, including extensions. If the form is being 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

Taking money out of a retirement account early can trigger penalties. Taking money out of a retirement account early and failing to report it properly can trigger more penalties. If you take an early distribution, whether or not you use the money for an allowable exception to the penalties, you can use Form 5329 to stay on the right side of the IRS.