Form 5329 - 2016 Tax Year Checklist
Purpose and Scope
This checklist explains how Form 5329 (2016) is used to report additional taxes tied to qualified retirement plans, Individual Retirement Arrangements, and other tax-favored accounts for the
2016 tax year. It focuses on early distributions, excess contributions, and minimum required distributions that trigger excise tax or IRS penalty treatment.
Form 5329 may be filed with Form 1040 or filed separately when no income tax return is otherwise required. Filing deadlines generally follow the standard tax filing deadline, including approved extensions, under federal tax laws and Internal Revenue Service guidance.
When Form 5329 is Required
Form 5329 is required when additional taxes apply to retirement plans, qualified plans, or other tax-advantaged accounts, or when an exception must be claimed that is not fully reflected on
Form 1099-R. It commonly applies to early distributions, excess contributions, or required minimum distribution shortfalls.
In some cases, Form 5329 is not required if all early distributions are correctly coded and the full additional tax is reported directly on Form 1040. Careful review of IRS Form 5329 instructions is essential before deciding whether a separate filing is necessary.
Ten-Step Checklist
Step 1: Confirm whether Form 5329 must be filed
Determine whether early distributions, excess contributions, or missed minimum distributions occurred during the 2016 tax year and whether those events trigger additional taxes under IRS regulations. Review Forms 1099-R, IRA custodian statements, and retirement account records carefully.
If multiple retirement accounts are involved, evaluate each account separately to confirm whether Form 5329 applies. When spouses file jointly, each spouse completes a separate Form
5329 for their own retirement plans.
Step 2: Identify the applicable Form 5329 part
Match each issue to the appropriate section of Form 5329, as each section calculates a different additional tax. Early distributions use Part I, excess contributions to traditional IRAs use Part III, and Roth IRA excess contributions use Part IV.
Education savings accounts, ABLE account issues, Archer MSA, and Health Savings Account excess contributions use the latter parts of the form. Using the wrong section can result in incorrect excise tax calculations and IRS penalty notices.
Step 3: Determine early distributions included in income
For early distributions from qualified retirement accounts, Part I line 1 includes only the taxable portion included in income, not the gross distribution shown on Form 1099-R. Roth IRA distributions require special analysis under the rules in Publication 590-B and Form 8606.
Distributions from pensions and annuities reported as pension and annuity income should be reviewed carefully. Ensure amounts reconcile with Form 1040 income lines and supporting tax forms.
Step 4: Apply valid exceptions to the early distribution tax
If an exception applies, exclude the qualifying amount on Part I line 2 and enter the correct exception number. Exceptions depend on plan type, age, and circumstances, and some apply only to employer plans, not IRAs.
Medical expense exceptions require computation based on the 2016 Adjusted Gross Income thresholds. Supporting documentation should be retained in case the Internal Revenue Service requests verification.
Step 5: Calculate the additional tax on early distributions
Compute the portion subject to additional taxes by subtracting exception amounts from taxable early distributions. Apply the standard 10 percent rate, or the higher SIMPLE IRA rate if applicable under tax regulations.
Transfer the calculated additional tax to Form 1040 line 59 for 2016. Confirm totals align with other tax returns and do not duplicate amounts reported elsewhere.
Step 6: Identify excess contributions to traditional IRAs
Use Part III when IRA contributions exceed the annual contribution limit or when prior-year excess contributions carry forward into 2016. Contribution limits depend on age, income sources, and eligibility rules under Publication 590-A.
Corrective withdrawals made by the tax filing deadline may reduce or eliminate the excise tax.
Earnings withdrawn with excess contributions may still affect taxable income and early distribution rules.
Step 7: Identify excess contributions to Roth IRAs
Use Part IV for excess Roth IRA contributions, including carryovers from prior years. Confirm eligibility and income limits carefully, as Roth IRA rules differ from traditional IRAs.
Year-end account values determine the excise tax base when excess contributions remain.
Documentation from the IRA custodian should support the reported figures.
Step 8: Address education, MSA, and HSA excess contributions
Coverdell ESAs, Archer medical savings accounts, and health savings account excess contributions are reported in their respective parts of Form 5329. Each account type has distinct contribution limits and correction rules.
Ensure excess amounts are calculated based on year-end balances and that corrective withdrawals are properly documented. Forms such as Form 8853 may be required for certain
Archer MSA reporting situations.
Step 9: Report missed Required Minimum Distributions
Part VIII applies when minimum required distributions were not fully taken from retirement plans or an inherited IRA during 2016. The excise tax is generally 50 percent of the shortfall unless a penalty waiver request is granted.
Waiver relief requires showing reasonable error and corrective action. Maintain evidence of corrective distributions and correspondence with the IRA custodian or plan administrator.
- Full IRS transcript retrieval (Wage & Income + Account)
- Professional tax form review
- Preparation & filing support
- Tax relief options if you owe the IRS
Step 10: Final review and filing
Confirm all applicable parts of IRS Form 5329 are completed using the correct 2016 line numbers. Verify that additional taxes flow correctly to Form 1040 and that supporting tax forms are consistent.
File Form 5329 with the income tax return or separately if no return is required, following the tax filing deadline. Retain copies with other tax documents in case of IRS review.
Final Review Considerations
Ensure the correct tax year version of Form 5329 is used and that excess contributions, early distributions, and minimum distributions are reported in the proper sections. Review IRS publications and the IRS website for updates affecting 2016 reporting.
Accurate preparation reduces IRS penalty risk and avoids processing delays. When uncertainty exists, consulting tax professionals or reviewing authoritative guidance can help ensure compliance with tax regulations.
If you’re missing tax documents or want to ensure the numbers you enter match IRS records, we can help.
