What Form 5329 (2022) Is For
IRS Form 5329 is used to report additional taxes on qualified plans and other tax-favored accounts. Taxpayers file this form when they owe taxes related to early distributions, excess contributions, or missed Required Minimum Distributions. It applies to arrangements such as Traditional IRAs, Roth IRAs, retirement plan accounts, Coverdell ESAs, Health Savings Accounts, endowment contracts, and some other tax-favored savings vehicles.
The form helps the Internal Revenue Service determine whether a taxpayer owes early withdrawal penalties or other tax adjustments linked to retirement savings activity. It also allows taxpayers to claim exceptions to early withdrawals or report errors that involve taxable income, contribution limits, or incorrect information reported on Form 1099-R. Even if a taxpayer does not have to file a complete tax return, Form 5329 must still be filed whenever these additional taxes apply.
When You’d Use Form 5329
A taxpayer uses Form 5329 when specific actions involving a retirement plan result in additional taxes that are not fully reported on Form 1040. This includes early withdrawals before age 59 1/2, excess contributions to accounts such as Traditional IRAs, Roth IRAs, HSAs, and Coverdell ESAs, or missed Required Minimum Distributions for the tax year. The form is also used when Form 1099-R does not show the correct exception code or when a taxpayer must report non-qualified distributions or conversion contribution amounts.
Form 5329 is also required when a taxpayer needs to correct prior reporting or claim exceptions for early distribution rules. Late or amended filing may be necessary when the individual discovers excess contribution limits were exceeded or when a withdrawal affects taxable income under IRS withdrawal rules. The form ensures proper reporting of other taxes tied to retirement savings and helps prevent long-term tax penalties.
Key Rules or Details for 2022
The 2022 tax year included rules affecting early distribution penalties, excess contribution limits, and required minimum distributions from qualified plans. Early withdrawals generally triggered a 10 percent early withdrawal penalty tax unless an exception applied, such as higher education expenses, medical costs, or qualified distributions allowed under specific provisions. Roth IRA distributions also followed the 5-year rule and account holding period requirements, especially for earnings and converted principal.
Contribution limits for IRAs remained at $6,000 or $7,000 for those age 50 or older, with penalties applying to excess contributions until corrected. Required minimum distributions for 2022 used updated IRS life expectancy tables and applied to both account owners and designated beneficiaries under the 10-year rule. Taxpayers who missed RMDs can request a penalty waiver on Form 5329 if they correct the shortfall and provide a reasonable explanation.
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Step-by-Step (High-Level)
Step 1: Gather the required information
The taxpayer collects all Forms 1099-R, Forms 5498, account statements showing December 31 balances, and any RMD calculators or worksheets used for the tax year. This information is needed to identify early distributions, excess contributions, and required minimum distributions that may trigger additional taxes.
Step 2: Identify which parts of Form 5329 apply
The taxpayer reviews retirement plan activity to determine whether there were early withdrawals, excess contributions, missed RMDs, or non-qualified distributions. Based on this review, the taxpayer decides which parts of Form 5329 must be completed for the tax year.
Step 3: Complete the relevant parts of the form
The taxpayer fills in the applicable sections of Form 5329, calculates any early withdrawal penalties, excess contribution taxes, or RMD penalties, and enters any exception amounts allowed under IRS rules. If requesting an RMD waiver, the taxpayer must prepare a brief written explanation to attach to the form.
Step 4: Transfer totals and prepare the tax return
The taxpayer transfers the total additional taxes from Form 5329 to Schedule 2 of Form 1040 or the appropriate line of Form 1040-NR and attaches Form 5329 to the tax return or amended return. The taxpayer then files the return, paying any tax due, and keeps copies of all documents for future reference.
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Common Mistakes and How to Avoid Them
- Using the wrong year’s Form 5329: Always file the version that matches the specific tax year you are correcting—especially when rules changed under laws like SECURE Act 2.0—to avoid processing delays or incorrect penalty calculations.
- Reporting incorrect distribution amounts: Do not assume the full Form 1099-R amount is subject to penalty; use Form 8606 and related worksheets to separate taxable earnings from Roth conversions, basis, or tax-free growth before completing Form 5329.
- Misunderstanding age-based and account-specific rules: Review IRA rules—such as the 5-year rule, 10-year rule, and age requirements—for Traditional, Roth, SIMPLE, and SEP IRAs to prevent unnecessary penalties on non-qualified withdrawals.
- Failing to correct excess contributions: Remove excess IRA contributions quickly or adjust future deposits to avoid the recurring 6% annual penalty applied until the excess is fully resolved.
- Missing the opportunity to request an RMD penalty waiver: File Form 5329 with a reasonable-cause explanation and proof of correction, since the IRS often waives the 50% penalty for eligible taxpayers.
Learn more about how to avoid business tax problems in our guide on How to File and Avoid Penalties.
What Happens After You File
After Form 5329 is filed, the Internal Revenue Service reviews the information and adds any additional taxes to the taxpayer’s overall tax liabilities for the year. If a waiver is requested for a missed Required Minimum Distribution, the IRS evaluates the explanation and determines whether to remove the penalty. The IRS will issue notices for any unpaid amounts, including interest, until the taxpayer resolves all retirement plan–related tax obligations.
FAQs
Does a taxpayer always need Form 5329 when Form 1099-R shows an early distribution?
A taxpayer needs Form 5329 only if claiming an exception or if the early distribution requires reporting beyond what is shown on Form 1099-R.
What should a taxpayer do if excess contributions are discovered from a prior year?
The taxpayer must file Form 5329 for each year the excess remained and correct the contribution to stop the recurring penalty.
How does a taxpayer request a waiver for a missed required minimum distribution?
The taxpayer completes Part IX, reports the shortfall, and attaches a reasonable cause explanation for IRS review.
Can Form 5329 be filed without a full income tax return?
Yes, Form 5329 can be filed separately if the taxpayer is not required to file Form 1040 or Form 1040-NR.
How does the 5-year rule affect Roth IRA withdrawals?
The 5-year rule determines when Roth IRA earnings may be withdrawn tax-free based on the account’s start date and qualifying events.
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