Form 5329 (2011) Checklist
Purpose and Overview
Form 5329 reports additional penalty taxes on early withdrawals from IRAs and qualified retirement plans, excess contributions to tax-favored accounts, and required minimum distribution shortfalls. The 2011 form reflects post-EGTRRA IRA contribution limits and consolidates reporting for HSA, Archer MSA, Coverdell ESA, and QTP excess contribution penalties on a unified schedule structure.
Filing Requirements and Procedures
You must verify your filing status and confirm the Form 1040 attachment requirement before completing Form 5329. If both you and your spouse are required to file Form 5329 for a jointly filed return, each spouse must complete a separate Form 5329. The combined tax from both forms appears on the joint return at Form 1040, line 58.
Part I: Early Distribution Penalty Rules
Age and Exception Requirements
You complete Part I only if you received distributions before age 59½ and no exception applies to reduce or eliminate the penalty. The standard early distribution penalty equals 10 percent of the taxable amount withdrawn. You must identify the applicable exception number from the 2011 instructions on line 2 to reduce the penalty base.
Common Exceptions to the 10 Percent Penalty
The following exceptions eliminate or reduce the early distribution penalty:
- Exception 02 applies to distributions made as substantially equal periodic payments over your life expectancy.
- Exception 03 applies to distributions due to total and permanent disability.
- Exception 04 applies to distributions made after the account owner's death.
- Exception 07 applies to IRA distributions made to unemployed individuals for health insurance premiums.
- Exception 08 applies to IRA distributions used for qualified higher education expenses.
- Exception 09 applies to IRA distributions for first-time homebuyer expenses up to a $10,000 lifetime limit.
SIMPLE IRA Enhanced Penalty
Distributions from a SIMPLE IRA within two years of your first participation trigger a 25 percent penalty instead of the standard 10 percent rate. You must separate SIMPLE IRA distributions received during the two years from all other distributions when calculating the penalty on line 4. The two-year period begins on the first day a contribution enters your SIMPLE IRA account.
Roth IRA Distribution Ordering Rules
Roth IRA distributions follow strict ordering rules that determine which amounts face taxation and penalties. Regular contributions come out first and are always tax-free and penalty-free, regardless of your age or how long the account has been open.
Conversions and rollovers come out second on a first-in, first-out basis, with the taxable portion of each conversion withdrawing before any nontaxable portion. Earnings come out last and may be subject to both income tax and the 10 percent early distribution penalty unless you meet an exception or the distribution qualifies as a qualified distribution under the five-year rule.
Part II: Education Account Distribution Penalties
You complete Part II for Coverdell ESA and QTP distributions that were not used for qualified education expenses during 2011. The taxable portion of non-qualified distributions incurs a 10 percent penalty in addition to regular income tax. Qualified education expenses include tuition, fees, books, supplies, required equipment, and room and board for students enrolled at least half-time at eligible institutions.
Part III: Traditional IRA Excess Contributions
Carryforward Requirements
You must carry forward any 2010 excess contributions from line 16 of your 2010 Form 5329 onto line 9 of the 2011 Form if line 17 of your 2010 Form shows an amount greater than zero. The 6 percent penalty applies annually to any unrecovered excess until you eliminate it through corrective distributions or by absorbing it with unused contribution room in future years. You calculate the net reduction from 2011 contributions and distributions on lines 10 through 13 to determine whether prior-year excess persists on line 14.
Contribution Limit Verification
Maximum allowable traditional IRA contributions depend on your earned income, spousal income if married filing jointly, active participant status, and filing status. For 2011, the basic contribution limit equals $5,000 or $6,000 if you reached age 50 or older by December 31, 2011.
You cannot make traditional IRA contributions for the year you reach age 70½ or any later year. Your modified adjusted gross income determines whether you can deduct contributions if you or your spouse participates in an employer retirement plan.
Parts IV through VII: Other Excess Contribution Penalties
Parts IV through VII address excess contributions to Roth IRAs, Coverdell ESAs, Archer MSAs, and HSAs, respectively. Each account type applies the 6 percent annual penalty on the lesser of total excess contributions or the account value as of December 31, 2011. Contributions made in early 2012, before the tax return filing deadline, but designated for 2011, count when determining year-end account values and may reduce penalty exposure.
Part VIII: Required Minimum Distribution Penalties
You complete Part VIII only if you failed to withdraw the full required minimum distribution for 2011 from your qualified retirement plan or IRA. For 2011, you must begin taking required minimum distributions by April 1 of the year after you turn 70½. The penalty for RMD shortfalls equals 50 percent of the amount you should have withdrawn but did not.
Waiver Request Procedures
The IRS can waive part or all of the 50 percent penalty if you demonstrate that the shortfall resulted from a reasonable error and that you are taking reasonable steps to remedy the situation. You enter “RC” and the waiver amount in parentheses on the dotted line next to line 52 to request reasonable cause relief. The IRS reviews your explanation and supporting documentation to determine whether to grant the waiver.
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This checklist is for educational purposes only and does not constitute tax or legal advice. Always review official IRS instructions and consult a qualified professional for guidance.
