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

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CURRENT ARTICLE

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.

Key Takeaways

Who Must File Form 5329?

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

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 Money withdrawn earlier is subject to a 10% penalty plus any income tax owed on the amount.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.

Form 5329 (page 1) Form 5329 (page 2)

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

What Is an 'Early' Withdrawal from a Retirement Account?

An early withdrawal is one made before the account holder reaches age 59½ unless the taxpayer qualifies for one of the exceptions to the rule.

The IRS imposes a 10% penalty for an early withdrawal unless the money is withdrawn for certain purposes. That's on top of any income taxes owed on the money withdrawn.

There are a number of these exceptions and the list changes from time to time. Current exceptions are made for educational expenses, a first-time home purchase, medical expenses, and more.

When Do I Have to Withdraw Money From My Retirement Account?

As of the 2023 tax year, the age at which a retirement account holder must begin making annual withdrawals is 73. The age for RMDs was 72 from 2020 through 2022. Before 2020, it was 70½.

The amount you must withdraw is based on the amount of money in the account and your life expectancy. The tax return instructions include a table to help you calculate the amount.

Who Pays the Penalty for IRAs?

You are generally responsible for paying the penalty on IRAs, including those for excess contributions. In some cases, your IRA custodian or plan trustee is now allowed to pay the penalty on your behalf as long as there are enough funds in the account.

When submitting a distribution request, you should elect to have amounts withheld only for federal and state tax, if applicable.

Penalties must be paid directly to the IRS, and are usually recorded on your tax return.

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.

Article Sources
  1. Internal Revenue Service. "Instructions for Form 5329."
  2. Internal Revenue Service. "Instructions for Form 5329."
  3. Internal Revenue Service. "Retirement Topics - Exceptions to Tax on Early Distributions."
  4. Internal Revenue Service. "Topic No. 310 Coverdell Education Savings Accounts."
  5. Internal Revenue Service. "Retirement Topics - Catch-Up Contributions."
  6. Internal Revenue Service. "Retirement Plan and IRA Required Minimum Distributions FAQs."
  7. Internal Revenue Service. "Publication 970, Tax Benefits for Education."
  8. Internal Revenue Service. "Retirement Topics - IRA Contribution Limits."
  9. Internal Revenue Service. "Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs)."
  10. Internal Revenue Service. "Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts," Page 1.
  11. Internal Revenue Service "Topic no. 558, Additional Tax on Early Distributions from Retirement Plans Other Than IRAs."
  12. Internal Revenue Service. "Instructions for Forms 1099-R and 5498." Page 15.
  13. Internal Revenue Service. "Substantially Equal Periodic Payments."
  14. Internal Revenue Service. "Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts."
  15. Internal Revenue Service. "Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts," Page 2.
  16. Internal Revenue Service. "Penalties."
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Description Part of the Series Federal Tax Forms
  1. Guide To Federal Tax Forms
  2. Form W-2
  3. Form W-2G
  4. The Purpose of the IRS W-4 Form
  5. How to Fill Out a W4 Form
  6. Form W-8
  7. Form W-9
  1. Form 1040
  2. Form 1040-NR
  3. Form 1040-SR
  4. Form 1040-V
  5. Form 1040X
  1. The Purpose of 1099 Forms
  2. Things to Know About 1099s
  3. Form 1099-A
  4. Form 1099-B
  1. 1099-C
  2. Form 1099-CAP
  3. Form 1099-DIV
  4. Form 1099-G
  5. Form 1099-H

1099 Forms INT–OID

  1. Form 1099-INT
  2. Form 1099-K
  3. Form 1099-LTC
  4. Form 1099-MISC
  5. Form 1099-OID

1099 Forms PATR–SA

  1. Form 1099-PATR
  2. Form 1099-Q
  3. Form 1099-R
  4. Form 1099-SA
  1. Form 706
  2. Form 706-GS(D)
  3. Form 843
  4. Form 1078
  5. Form 1095-B
  6. Form 1098
  1. Form 1310
  2. Form 2441
  3. Form 2848
  4. The Purpose of IRS Form 2848
  5. Form 4070A
CURRENT ARTICLE Related Articles

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An after-tax contribution is a deposit into a retirement account of money that has been taxed in the year in which it was paid into the account.

The life expectancy method calculates IRA payments by dividing the balance of a retirement account by the policyholder’s anticipated length of life.

The thrift savings plan (TSP) is a retirement investment program open only to federal employees and members of the uniformed services.

The CSRS provided the retirement, disability, and survivor benefits for most U.S. civilian service employees working for the federal government.

Rule 72(t), issued by the Internal Revenue Service (IRS), allows for penalty-free withdrawals from an IRA account and other certain tax-advantaged accounts.

A 457 plan is a tax-advantaged retirement savings account available to many employees of governments and nonprofit organizations.

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