What Form 5329 (2019) Is For
IRS Form 5329 (2019) is used when an account owner owes penalty taxes on early distributions, excess IRA contributions, or missed required minimum distributions from a retirement plan. These rules apply to traditional IRA accounts, Roth IRA accounts, SEP IRAs, SIMPLE IRAs, and other qualified plans that hold retirement savings. If an exception applies, the form helps determine whether the withdrawal qualifies for penalty-free treatment.
Taxpayers use the form to calculate penalties on the taxable portion of early withdrawals or to correct issues involving Roth IRA contributions or traditional IRA contributions. The form also reports RMD penalties for inherited IRA accounts and situations involving the owner’s death. Although this guide focuses on 2019, many of the rules also appear on IRS Form 5329 for 2020.
When You’d Use Form 5329
Taxpayers file the form when early withdrawals occur before age 59 and no exception applies, making the distribution generally subject to the early withdrawal penalty. It also applies when an account owner must withdraw money from a retirement account but fails to take the full amount of their first required minimum distribution. Individuals may also use the form when early distributions were made under certain conditions, such as qualified military reservists called to active duty.
Form 5329 is also required when Roth conversions, substantially equal periodic payments, or early IRA withdrawals fall under different rules and trigger additional taxes. Taxpayers use the form to calculate penalties on excess contributions made to traditional or Roth IRA accounts and to report situations involving unreimbursed medical expenses or other qualified distributions. Filing may also be required when taxes withheld or income from unemployment compensation affects penalty calculations for the tax year.
Key Rules or Details for 2019
For the 2019 tax year, early distributions from an IRA, SIMPLE IRA, or other retirement plan were generally subject to a 10% penalty unless an exception applied. Specific exceptions to the 10 percent penalty included medical expenses above threshold limits, qualified military reservists, terminal illness, and substantially equal payments. Roth IRA withdrawals followed separate rules, with earnings taxed unless the distribution qualified as tax-free.
Missed RMDs could trigger a 50% penalty on the amount not withdrawn, including for inherited IRA beneficiaries using life expectancy tables after the owner’s death. Excess IRA contributions may also result in annual penalties until they are removed in a subsequent year. Because different rules applied to each account type, taxpayers needed to review whether distributions, earnings, or contributions were subject to additional tax.
For complete details on wage reporting, withholdings, and unemployment tax filings, see our guide for Individual Tax Forms.
Step-by-Step (High Level)
The form contains several parts, and taxpayers complete only the sections relevant to their accounts and distributions.
Step 1: Provide Identification
- Name
- Social Security number
- Address if filing the form by itself
Step 2: Report Early Distributions
- Enter taxable early distributions from retirement plans.
- Identify any qualified exceptions.
- Calculate the 10% additional tax.
Step 3: Calculate Excess Contribution Penalties
- Report excess traditional IRA contributions.
- Report excess Roth IRA contributions.
- Identify excess contributions to HSAs or MSAs if applicable.
- Determine the annual 6% penalty.
Step 4: Report Missed RMD Amounts
- Calculate the account balance at year-end.
- Determine the required minimum distribution.
- Compare RMD with actual withdrawals.
- Compute the 50% penalty.
- Request a waiver if reasonable cause exists.
Step 5: Attach Totals to Your Tax Return
- Transfer totals to Schedule 2 of Form 1040.
- Include payment if filing separately.
These steps help taxpayers determine penalties based on contributions, distributions, earnings, and account balances across all retirement accounts.
Common Mistakes and How to Avoid Them
- Filing Form 5329 when it isn’t required: If Form 1099-R shows code “1” and no exception applies, report the penalty directly on Schedule 2 to avoid unnecessary filing mistakes.
- Leaving excess contributions in the account for multiple years: Withdraw excess traditional or Roth IRA contributions (plus earnings) by the extended deadline to stop the 6% annual penalty.
- Assuming the 50% RMD penalty must always be paid: Submit Form 5329 with a reasonable-cause explanation and withdraw the missed amount to request a penalty waiver, including for inherited IRAs.
- Confusing Roth IRA withdrawal rules: Follow Roth IRA ordering regulations and remember that contributions are tax-free to withdraw, but early earnings may be taxed and penalized unless the distribution is qualified.
- Overlooking key IRA limits and distribution requirements: Review RMD rules, contribution limits, and distribution codes to ensure accurate reporting and avoid preventable errors.
Learn more about how to avoid business tax problems in our guide on How to File and Avoid Penalties.
What Happens After You File
Once Form 5329 is filed, the IRS reviews whether penalties on early withdrawals, excess IRA contributions, or missed RMDs were calculated correctly. Any additional tax owed is added to the taxpayer’s balance due, and payments may be required depending on taxes withheld earlier in the year. If a waiver request is included for missed RMDs, the IRS may ask for additional information.
If exceptions apply and the form supports penalty-free treatment, the IRS adjusts the return accordingly. When the taxpayer has unpaid penalties related to a retirement account, the IRS may issue notices or, in rare cases, use an IRS levy if taxes remain unpaid over time. Processing varies by circumstances, but future distributions or IRA withdrawals must follow the rules to avoid additional penalties in a subsequent year.
FAQs
When is Form 5329 (2019) required for early distributions from an IRA or retirement plan?
Form 5329 (2019) is used when early distributions from a traditional IRA, Roth IRA, SIMPLE IRA, or employer-sponsored retirement plans are subject to a penalty tax. The form helps determine whether an exception applies and calculates the taxable income owed for the tax year.
How does Form 5329 apply when an IRA owner dies and a beneficiary must take RMDs?
When an IRA owner dies, a designated beneficiary or spouse inheriting the individual retirement account must follow RMD rules based on life expectancy. Form 5329 reports penalties for missing the required minimum distribution. The inherited IRA may follow different rules depending on the plan and federal law.
Are excess IRA contributions reported on Form 5329 (2019)?
Yes, excess traditional IRA contributions or Roth IRA contributions must be reported when total contributions exceed taxable compensation limits. Form 5329 calculates penalties and helps taxpayers determine how to correct the issue in the same calendar year or a later tax year.
Does Form 5329 apply to employer-sponsored retirement plans and defined contribution plans?
Form 5329 may apply when early withdrawals or missed RMDs occur in defined contribution plans or other qualified plans. The form calculates the tax due when an account owner fails to withdraw the correct account balance. Additional information from the IRA custodian may be needed to calculate earnings or assets accurately.
Can Form 5329 help determine penalties related to SIMPLE IRAs, SEP IRAs, or annuity withdrawals?
Yes, SIMPLE IRAs, SEP IRAs, and annuity distributions follow specific rules that may result in penalties if the account owner withdraws money prematurely. Form 5329 identifies whether the withdrawal is subject to tax or qualifies for an exception. It also helps calculate payments owed based on plan type and contributions.
For more resources on filing or understanding other IRS forms, visit our Form Summaries and Guides Library.
