What is the Form 5329?

Form 5329 is an attachment to the federal income tax return, used by taxpayers who owe a penalty related to their use of tax-advantaged retirement savings plans and other tax-favored accounts, such as IRAs, 401(k)s, HSAs, and ESAs. In this article, we'll provide you with the exact steps for filling out Form 5329 and other important information.

Here's a summary of the type of information included in the forms:

• Personal information, such as name, address, and social security number.
• Information about contributions and distributions from qualified retirement plans, IRAs, and other tax-favored accounts.
• Information about any excess contributions, early distributions, or excess accumulations.
• Details on any exceptions or waivers that may apply to the additional taxes.

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Who needs to file the Form 5329?

Form 5329 is typically required for taxpayers who have made excess contributions, taken early distributions, or have excess accumulations in their tax-advantaged retirement savings plans and other tax-favored accounts. This demographic includes individuals with IRAs, 401(k)s, HSAs, and ESAs who have encountered situations that trigger additional taxes. However, there are several exceptions that may apply to these additional taxes, as listed below:

• Qualified higher education expenses for distributions from IRAs and ESAs.
• First-time homebuyer expenses for IRA distributions, up to a $10,000 lifetime limit.
• Unreimbursed medical expenses exceeding a certain percentage of adjusted gross income for distributions from IRAs and HSAs.
• Health insurance premiums paid while unemployed for IRA distributions.
• IRS levy on the qualified retirement plan or IRA.
• Qualified reservist distributions for members of the military reserves called to active duty.
• Series of substantially equal periodic payments (SEPP) from an IRA or qualified retirement plan.
• Disability or death of the account owner.
• Rollovers or conversions between qualified retirement plans and IRAs within the allowed time frame.

It's important to carefully review the instructions for Form 5329 and consult with a tax professional if you're unsure whether an exception applies to your situation.

Essential updates to the Form 5329

For the most recent updates to Form 5329, taxpayers should be aware of the following changes:

• The IRS has adjusted the income phase-out ranges for determining eligibility to make deductible contributions to traditional Individual Retirement Arrangements (IRAs), contribute to Roth IRAs, and claim the Saver's Credit.
• For 2024, the contribution limits for IRAs have increased. The limit for traditional and Roth IRAs is now $6,500 for individuals age 50 or older, and $6,000 for those under 50. The catch-up contribution limit for individuals age 50 or older remains at $1,000.
• Health Savings Account (HSA) contribution limits have also been adjusted for 2024. The limit for individual coverage is now $3,650, and the limit for family coverage is $7,300. The catch-up contribution limit for individuals age 55 or older remains at $1,000.
• For Coverdell Education Savings Accounts (ESAs), the maximum contribution limit remains at $2,000 per beneficiary per year. However, the income phase-out ranges for determining eligibility to contribute to an ESA have been adjusted for inflation.

It's essential to stay informed about these updates and consult with a tax professional if you have any questions or concerns regarding Form 5329 and its recent changes.

2024 Form 5329 filing deadlines

Form 5329 is filed annually, accompanying the taxpayer's income tax return. The due date for filing Form 5329 is typically the same as the individual's due date for filing their tax return, including any extensions. If the due date falls on a weekend or holiday, the deadline is extended to the next business day. It's important for taxpayers to be aware of the due dates for their income tax returns, as this will also be the deadline for filing Form 5329.

Exact deadline dates for 2024

• Form 5329 should be filed with the individual's 2023 Form 1040, 1040-SR, 1040-NR, or 1041 by the due date, including extensions, of the tax return.
• If the individual doesn't have to file a 2023 income tax return, they should complete and file Form 5329 by itself at the time and place they would be required to file Form 1040, 1040-SR, or 1040-NR.
• Generally, the due date for filing a tax return is April 15th of the following year. However, if the individual has requested an extension, the due date may be later.
• Form 5329 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.

Form 5329 late payment penalty

Failure to file Form 5329 on time or underreporting your tax liability can result in IRS penalties, which can amount to 10% of the total tax amount due for early distributions from a qualified retirement account, unless an exception applies. The IRS may waive part or all of the additional tax if you can show that any shortfall in the amount of distributions was due to reasonable error and you are taking reasonable steps to remedy the shortfall. If you need to amend your Form 5329, you should file an amended return using the appropriate version of the form for the tax year you are amending.

Step-by-Step Instructions for IRS Form 5329

Part I: Additional Tax on Early Distributions

This section is used to calculate the tax on early withdrawals from retirement accounts that are not qualified distributions.

• Line 1: Enter early distributions includable in income.
• Line 2: Enter any appropriate exceptions from the instructions.
• Line 3: Subtract line 2 from line 1 to find the amount subject to additional tax.
• Line 4: Additional tax. Enter 10% of line 3. Include this amount on Schedule 2 (Form 1040), line 8.

This section ensures that taxpayers correctly apply the 10% additional tax on early distributions that are not covered by exceptions like medical expenses or first-time home purchases.

Part II: Additional Tax on Excess Contributions

This part calculates the tax on contributions to IRAs that exceed the allowed limits.

• Line 5: Enter excess contributions for the current year.
• Line 6: Enter excess contributions included in income this year from prior year returns.
• Line 7: Add lines 5 and 6.
• Line 8: Enter withdrawals of excess contributions.
• Line 9: Subtract line 8 from line 7.
• Line 10: Additional tax. Enter 6% of line 9. Include this amount on Schedule 2 (Form 1040), line 8.

This part helps taxpayers to handle the consequences of over-contributing to their IRAs, which is subject to a 6% tax each year until corrected.

Part III: Additional Tax on Excess Aggregate Contributions to 401(k) Plans

This section deals with excess contributions to 401(k) plans.

• Line 11: Enter excess aggregate contributions.
• Line 12: Enter excess aggregate contributions included in income.
• Line 13: Add lines 11 and 12.
• Line 14: Enter corrective distributions of excess contributions.
• Line 15: Subtract line 14 from line 13.
• Line 16: Additional tax. Enter 10% of line 15. Include this amount on Schedule 2 (Form 1040), line 8.

This part addresses excess contributions to 401(k) plans and ensures that additional taxes are calculated and reported.

Part IV: Additional Taxes on Excess Accumulations in Qualified Retirement Plans

This part addresses required minimum distributions that were not taken, leading to excess accumulations.

• Line 17: Enter the amount required to be distributed.
• Line 18: Enter the amount actually distributed.
• Line 19: Subtract line 18 from line 17.
• Line 20: Additional tax. Enter 50% of line 19. Include this amount on Schedule 2 (Form 1040), line 8.

This part ensures that the severe penalty for failing to take required minimum distributions is calculated and applied correctly, serving as a crucial check on maintaining the rules surrounding retirement distributions.

Privacy Act and Paperwork Reduction Act Notice

This notice provides information about the legal basis for requesting the information on this form, how it may be used, and the potential consequences of providing inaccurate information.

How to file Form 5329

Form 5329 can be filed with the taxpayer's 2023 Form 1040, 1040-SR, 1040-NR, or 1041 by the due date, including extensions, of the tax return. If the taxpayer doesn't have to file a 2023 income tax return, they can complete and file Form 5329 by itself at the time and place they would be required to file Form 1040, 1040-SR, or 1040-NR. If the form is filed with the taxpayer's income tax return, it can be filed electronically as part of that return. However, if Form 5329 is filed by itself, it cannot be filed electronically. In this case, the taxpayer should include their address on page 1 of the form and their signature and date on page 2. They should enclose, but not attach, a check or money order payable to "United States Treasury" for any taxes due, writing their social security number and "2023 Form 5329" on the check. For information on other payment options, including credit or debit card payments, see the Instructions for Form 1040 or the Instructions for Form 1040-NR, or visit IRS.gov.

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