Federal Form 5329: Who Needs to File and How to Do It

Federal Form 5329, “Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts,” is a document used to report additional taxes on savings accounts like IRAs and 401(k)s. These taxes arise from specific situations involving tax-favored savings accounts. The form addresses penalties for actions like taking money out too early, contributing too much, or not taking required withdrawals. It serves as the mechanism for calculating and reporting these additional taxes to the Internal Revenue Service (IRS).

When You Must File Form 5329

Early Distributions

One of the most common reasons for filing Form 5329 is taking an early distribution from a qualified retirement plan. If you withdraw funds from an account like a traditional IRA or a 401(k) before you reach age 59½, the amount withdrawn is subject to a 10% additional tax. This penalty is on top of any regular income tax you owe on the distribution. You are required to file Form 5329 to calculate and report this 10% tax. Even if an exception applies, you may still need to file the form to claim it, especially if your account custodian reports the withdrawal on Form 1099-R without a known exception.

Excess Contributions

Another situation that necessitates filing Form 5329 is making excess contributions to accounts like IRAs, Health Savings Accounts (HSAs), Archer MSAs, and Coverdell Education Savings Accounts (ESAs). If you contribute more than the allowed amount, the excess is subject to a 6% excise tax for each year it remains in the account. This 6% tax is cumulative, meaning it applies annually until the excess contribution is corrected. To stop the penalty, you must withdraw the excess amount and any earnings by the tax filing deadline for the year of the contribution.

Missed Required Minimum Distributions (RMDs)

Once you reach age 73, you are required to start taking annual withdrawals from your traditional retirement accounts, known as Required Minimum Distributions (RMDs). The deadline for taking your RMD is December 31 of each year. If you fail to withdraw the full RMD amount by the deadline, the shortfall is subject to a 25% penalty. This penalty can be reduced to 10% if you correct the shortfall in a timely manner, which means correcting the mistake within two years or before the IRS issues a notice. You must file Form 5329 to report the shortfall and calculate the tax, or to request a waiver of the penalty if you had a reasonable cause for the error.

Information and Calculations for Form 5329

Required Documents

Before you begin to calculate any penalties, you need to gather several documents. The most critical is Form 1099-R, which you receive from any financial institution from which you took a distribution. This form reports the total distribution and may include a code in Box 7 that indicates whether an exception might apply. You should also have your year-end account statements for all retirement accounts to verify contribution limits and calculate RMDs. Finally, you will need your personal contribution records to track how much you have put into each account.

Calculations and Exceptions

The calculations for Form 5329 depend on the specific penalty. For an early distribution, the tax code provides several exceptions that can waive the penalty. Common exceptions include distributions taken for:

• Total and permanent disability
• Unreimbursed medical expenses exceeding 7.5% of your adjusted gross income (AGI)
• A first-time home purchase (up to $10,000 from an IRA)
• Higher education expenses
• Health insurance premiums while unemployed
• A series of substantially equal periodic payments

When dealing with an early distribution, you first determine the total amount taken and then identify if any portion qualifies for an exception. The tax is calculated only on the portion of the distribution not covered by an exception. Each exception has a specific code that must be entered on Form 5329.

For excess contributions, you must know the contribution limits for the specific account type and year. For example, for 2025, the IRA contribution limit is $7,000, or $8,000 if you are age 50 or older. This limit applies to the combined total of all your traditional and Roth IRAs.

If you missed an RMD, the calculation starts by determining the required withdrawal amount for the year. This is based on your account balance at the end of the previous year and a life expectancy factor from IRS tables. You then subtract the amount you actually withdrew, if any, from the required amount to find the shortfall.

A Guide to Completing Form 5329

Part I: Additional Tax on Early Distributions

Once you have determined that you took an early distribution, you will use Part I of Form 5329 to report it. On line 1, you will enter the total amount of your early distributions, which should align with your Form 1099-R. If a portion of your distribution is not subject to the tax because it meets one of the exceptions, you will enter that amount on line 2. You must also enter the corresponding two-digit exception code provided in the form’s instructions, for example, ’03’ for a distribution due to total and permanent disability.

Parts III-VIII: Taxes on Excess Contributions

The middle sections of Form 5329 are for calculating the tax on excess contributions to various accounts. Each account type, such as traditional IRAs (Part III), Roth IRAs (Part IV), and HSAs (Part VII), has its own designated part. You only need to complete the part that applies to your situation. Within the relevant part, you will report any excess contributions carried over from previous years and add any new excess contributions made during the current tax year. The form then allows you to subtract any withdrawals of excess contributions you made before the tax deadline.

Part IX: Additional Tax on Excess Accumulation

If you failed to take your full RMD, you will complete Part IX. On line 52, you enter the RMD amount that you were required to take for the year. On line 53, you enter the amount you actually withdrew. The difference between these two lines is the shortfall, which is entered on line 54. This shortfall is then multiplied by the applicable penalty rate to calculate the additional tax on line 55. If you are requesting a waiver of this penalty due to a reasonable cause, you would enter zero on line 55 and attach a statement explaining why.

How to File Your Completed Form 5329

Filing with a Tax Return

The most common way to file Form 5329 is by attaching it to your annual federal income tax return, such as Form 1040 or 1040-SR. After you have calculated the total additional taxes on Form 5329, you will carry that total over to Schedule 2 (Form 1040), “Additional Taxes.” This ensures the penalty is included in your overall tax calculation for the year. Tax preparation software will typically generate and attach Form 5329 automatically if your entries indicate it is needed. If you file a paper return, you must remember to include the completed form.

Filing by Itself

In some situations, you may need to file Form 5329 even if you are not required to file a regular income tax return. This can happen if you have a penalty to report but your income is below the threshold that requires you to file a Form 1040. When filing Form 5329 alone, you must fill in your name, address, and Social Security number and sign and date the form. You then mail the standalone form to the IRS processing center. If you owe tax, you must enclose a check or money order payable to the “United States Treasury” with the form.

Filing for a Waiver

A key function of Form 5329 is to request a waiver of the penalty for a missed RMD. If you believe you had a reasonable cause for failing to take the required distribution, such as a serious illness or a bank error, you can ask the IRS to waive the penalty. You must attach a letter to the IRS explaining the circumstances that led to the missed RMD and the steps you have taken to correct the error, such as withdrawing the shortfall amount.