What Form 5329 2024 Is For
IRS Form 5329 (2024) is used to report additional taxes on qualified retirement plans, Individual Retirement Arrangements, and other tax-favored accounts when distributions or contributions do not follow federal tax laws. The Internal Revenue Service uses this form to calculate penalties for early distributions, excess contributions, and failures to meet minimum distribution requirements. The form also allows taxpayers to claim exceptions, request penalty waivers, and explain situations that qualify as reasonable cause.
This form applies to a wide range of retirement accounts. These include traditional IRA and Roth IRA accounts, employer plan distributions from a qualified plan, and tax-advantaged accounts such as Health Savings Accounts, Archer MSAs, Education Savings Accounts, and 529 Plan accounts. It also includes endowment contracts, ABLE account withdrawals, Coverdell ESAs, and other income sources tied to retirement plan benefits.
When You’d Use Form 5329
A taxpayer uses Form 5329 when additional taxes apply to retirement accounts, such as an early distribution from a traditional IRA, a Roth IRA, or a qualified retirement plan. It is also required when a Form 1099-R shows distribution code 1, but the taxpayer qualifies for an exception or needs to report withdrawn contributions.
Form 5329 is necessary if excess contribution amounts remain in any tax-advantaged accounts on December 31. It is also used when filing an amended return to correct errors involving required minimum distributions or other issues related to retirement plans.
Key Rules or Details for 2024
The early distribution penalty applies to withdrawals taken before age 59½ unless an exception applies, such as medical expenses, separation from service, or qualified disability expenses. Changes under current federal tax laws expand exceptions for emergency personal expenses and domestic abuse situations affecting retirement plan distributions.
Excess contribution penalties continue at six percent each year until corrected, and Form 5329 calculates these taxes for IRAs, Health Savings Accounts, Archer MSAs, and other tax-favored accounts. Required minimum distributions begin at age 73, and missed withdrawals may result in a reduced 10 percent tax if corrected promptly.
For complete details on wage reporting, withholdings, and tax filings, see our guide for Individual Credit & Deduction Forms.
Step-by-Step (High Level)
Step 1: Identify the applicable parts
A taxpayer should review the form to identify whether early distribution, excess contribution, or minimum distribution sections apply. Each part corresponds to a specific account type or tax situation.
Step 2: Gather necessary documentation
A taxpayer should collect Forms 1099-R, account records showing December 31 balances, contribution summaries, and documents related to medical determination or exception eligibility. These items ensure accurate reporting of gross income and retirement accounts.
Step 3: Complete the appropriate sections
- The taxpayer should complete Part I to calculate any early distribution penalty.
- The taxpayer should complete Parts III and IV for excess contribution issues involving traditional IRA or Roth IRA accounts.
- The taxpayer should complete Parts V through VIII for Health Savings Accounts, Archer MSAs, Medical Savings Accounts, and Coverdell Education Savings Accounts.
- The taxpayer should complete Part IX to determine the required minimum distributions and calculate the amounts applied to Line 54.
Step 4: Report totals on the tax return
A taxpayer should transfer penalties to Schedule 2 and attach Form 5329 to Form 1040, Form 1040-NR, or Form 1040-X for amended return filings. Related forms such as Form 8853 and Form 8889 must also be attached when required by IRS guidelines.
Common Mistakes and How to Avoid Them
- Failing to file Form 5329 when an exception applies: If Form 1099-R shows distribution code 1, file Form 5329 to claim the correct exception and avoid the early-distribution penalty.
- Leaving excess contributions in an account for multiple years: Review annual contribution limits for all IRAs, employer plans, and education accounts, and remove excess amounts promptly to stop recurring penalties.
- Overlooking contribution totals across multiple accounts: Track deposits made to traditional IRAs, Roth IRAs, and other plans to ensure combined contributions do not exceed annual limits.
- Delaying the first required minimum distribution: Be aware of your first-year RMD deadline to avoid stacking distributions and triggering additional penalties.
- Miscalculating annual RMD amounts: Calculate each year’s RMD separately using the correct life expectancy table, joint life rules, or beneficiary category for accurate compliance.
Learn more about how to avoid business tax problems in our guide on How to File and Avoid Penalties.
What Happens After You File
The Internal Revenue Service processes Form 5329 with the taxpayer’s federal tax return to determine whether additional taxes apply. If a penalty waiver request is included for missed required minimum distributions, the IRS may request additional information to evaluate the reasonable cause.
Any taxes calculated on the form are added to the total amount due on Form 1040, Form 1040-NR, or an amended return filed with Form 1040-X. Interest, state taxes, or penalties may accrue if the amount remains unpaid, and future retirement plan management may require adjustments to comply with IRS guidelines.
FAQs
Does a taxpayer need to file Form 5329 if no income tax return is required?
Yes, the taxpayer must file Form 5329 by itself if additional taxes apply, even without a complete tax return.
Can an excess contribution be corrected without owing the six percent penalty?
The penalty continues each year until the excess amount is removed or corrected. The taxpayer may avoid tax on withdrawn contributions if the correction is completed by the extension deadline.
Can a taxpayer request a waiver for missed minimum distributions?
Yes, the taxpayer may request a waiver by showing reasonable cause and correcting the shortfall.
Should Roth IRA earnings be reported if withdrawn early?
Yes, withdrawn earnings are subject to early distribution rules and may require the completion of Form 5329 and Form 8606.
What should a taxpayer do if an error is discovered in a prior year?
The taxpayer should file an amended return using Form 1040-X and attach the correct year’s Form 5329.
For more resources on filing or understanding prior-year IRS forms, visit our Form Summaries and Guides Library or see our IRS assistance guide.
