IRS Form 5329 [For Retirement Savings And More] | Internal Revenue Service

Owners of IRA accounts may need to file the IRS tax form 5329, especially for those receiving disbursements. There are also critical processes about the IRS 5329 form that taxpayers might not know.

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In this article:

1. First, What Is Form 5329?
2. Where Not to File Form 5329
3. Exceptions for IRS Form 5329
4. The IRS Form 5329 Codes: List of Exceptions
5. IRS Form 5329 for First-Time Homebuyers
6. IRS Form 5329 for Missed RMD

IRS Form 5329 | The ABCs of Filing It

First, What Is Form 5329?

The process of filing IRS Form 5329 may be essential for people with qualified retirement accounts. These include the IRA (individual retirement account), QTPs (qualified tuition programs for higher education), HSA (health savings account), and other plans that provide tax advantages.

However, there are exceptions, though, so knowing the requirements and conditions can ensure you file the IRS 5329 form correctly.

Remember, not filing the federal tax from 5329 can lead not just to many late fees but also to the possibility of a tax audit. Tax audits can be very complex and can lead to a tax lien over a number of assets.

Who should prepare the tax Form 5329?

1. Investors who took out a distribution from the IRA and need to pay the 10% early penalty
2. An individual who uses the funds of a QTP for school early or ESA (education saving account) and the amount was not used for qualified expenses, and the taxpayer does not qualify for any exceptions for the early penalties. The Individual should fill out Part 2 of tax Form 5329.
3. Taxpayers who needed to take from an employee plan, like a 401(k), before retirement unless they qualify for the withdrawal
4. If the taxpayer above is qualified under the law to not receive the 10% penalty and the reason for qualification is not in the usual IRS Form 1099-R. To supplement the outdated or incomplete options in form 1099-R, he or she must fill out Part 1 of the 5329 form.

Lastly, investors who contribute over the limits of their IRA need to file the 5329 form. The IRA contribution may change every year, so taxpayers should always check if their contributions go above their IRAs and retirement account limits.

Where Not to File Form 5329

You may have to file IRS Form 5329 if you have to pay taxes on IRAs and other retirement plans, Coverdell ESAs, modified endowment contracts, HSAs, QTPs, Archer MSAs, and ABLE accounts.

If you took an early distribution from your Roth IRA or another qualified retirement plan, you may also have to file IRS Form 5329 as well.

In some cases, you may not be required to file Form 1040 or 1040NR. In this case, file Form 5329 by itself.

Don’t file it just anywhere. File it at the address you normally send a Form 1040.

If you are filing Form 5329 by itself, you cannot file it electronically.

Form 5329 Turbotax may only be filed if you are filing Form 1040 for Form 1040NR along with it.

To find where to mail Form 5329, look for the address where you normally send your 1040. Always know the things you need before filing.

Exceptions for IRS Form 5329

Several exceptions apply for this form. If you meet any of the following, you do not have to file Form 5329:

• If you receive a qualified retirement plan after separation for service, and the separation happens during the year or after you reach 55.
• CAVEAT: This does not apply to IRAs. The age is 50 and 1/2 for any qualified public safety employee.
• If any distribution was made as part of a series of equal payments made at least once per year for your life.
• If you receive a distribution because you have been deemed totally and permanently disabled.
• Any distributions because of death. This exception does not apply to modified endowment contracts.
• Any qualified retirement plan distributions equal to or less than the amount you paid for medical expenses during the year, minus 7.5% of the year’s adjusted gross income.
• If a qualified retirement plan distribution was made to another payee you listed under a qualified domestic relations order (QDRO). This exception does not apply to IRAs.
• IRA distributions made if you were unemployed if you used them to pay some health insurance premiums.
• An IRA distribution used for certain higher education expenses.
• If you used an IRA distribution to buy a first home. The limit is $10,000.
• If you used distributions from a qualified retirement plan to pay an IRS levy.
• If you took a qualified distribution while you were serving on active duty for at least 180 days.

You need a Form 5329 waiver if you lost your job and needed to pay your health insurance premiums.

Since you don’t have income because you are not working, you may take a distribution and use it to pay the premiums.

Be sure to have the proper documentation showing you used the distribution to pay health insurance premiums.

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The IRS Form 5329 Codes: List of Exceptions

02 – for distributions made at least every year for the life expectancy of the investor or jointly with the investor’s spouse.

These distributions should be 1) equal for all payments 2) periodic, meaning predictable schedule, and lastly 3) withdrawals are part of a series.

For Employment plans after the separation of service:

03 – total and permanent disability trigger or causes the distributions.

04 – distributions due to death. Caveat: if the plan is a modified endowment contract, code 04 does not apply.

05 – Usually, if the distribution comes from a qualified retirement plan, a penalty applies. However, if the withdrawal 1) exceeds 7.5% of the adjusted gross income and 2) the reason for the withdrawal is due to medical reasons, a penalty may not apply.

For the following IRS Form 5329 codes, the taxpayer does not need to itemize the expenses:

07 – individuals who 1) pay their health insurance premiums, 2) for 12 weeks consecutively, 3) on unemployment compensation, 4) from their IRAs.

08 – expenses for higher education from the IRA.

09 – buying a first home using an IRA distribution up to a maximum of $10,000.

10 – distributions to pay an IRS tax levy from a qualified plan.

11 – Reservists receiving qualified distributions. To use code 11, these reservists should be on active duty for at least 180 days.

12 – tagged as Other, for exceptions not listed above. Also should be used if the taxpayer uses 2 or more codes.

IRS Form 5329 for First-Time Homebuyers

If you are a first-time homebuyer, you may decide to take an early distribution. You may not have to file IRS Form 5329 if you used the money for a down payment.

This exception does have a limit of $10,000, but that $10,000 may make the difference between an offer for your dream home being accepted or denied.

Make sure you have documentation regarding being a first-time home buyer. You may have to provide it at a later time.

IRS Form 5329 for Missed RMD

If you missed a required minimum distribution (RMD), you may have to file IRS Form 5329 Part IX. If you don’t take it, you will have an excess accumulation in qualified retirement plans, including IRAs.

The tax you will have to pay is 50% of the excess accumulation.

The excess accumulation is the difference between the required distribution amount and the amount you actually took. If you pay this tax, it is for the year that includes the last day you are able to take the required minimum distribution.

If you have an IRA, you must start receiving your distributions by April 1 of the year after you turn 70 ½. You may take all the interest or periodic distributions.

If you choose distributions, you have to take the minimum required distribution every year.

If you have two or more IRAs, and they are not Roth IRAs, you are able to take the minimum required distribution from one or all your IRAs.

Qualified charitable distributions also count toward the minimum required distribution.

If you believe you need to file IRS Form 5329, read the instructions carefully as there are many exceptions to filing. You may also find you should have filed when you thought you might not have had to file this form. Doing due diligence prevents you from paying late fees.

The IRS Form 5329, in a nutshell, applies mainly when the taxpayer 1) has to take an early distribution or 2) contributes over the limit for IRAs.

The first step to reaching your financial goals is knowing how to budget properly. Once a taxpayer and investor have this skill, the need for withdrawing early or contributing over the limit for a retirement plan decreases.

Have you used IRS Form 5329 before? How did you handle it? Let us discuss in the comments section below.

If you owe back taxes, visit taxreliefcenter.org for more information on tax relief options.

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Editor’s Note: This post was originally published on April 26, 2018, and has been updated for quality and relevancy.