Form 5329 (2016) Instructions: Correct Filing Checklist

retirement plans for the 2016 tax year. It most commonly applies to early distributions, excess contributions, and failures to take required minimum distributions.

This form is filed with Form 1040, Form 1040NR, or as a standalone return when required. It does not report Net Investment Income Tax or Additional Medicare Tax, which are handled separately under federal tax laws.

Overview of Form 5329 for 2016

Form 5329 applies to Individual Retirement Arrangements, employer-sponsored retirement plans, and specific education savings accounts. It calculates excise tax penalties when statutory requirements are not met during the tax year.

The most frequent issues involve early distributions before age fifty-nine and one-half, excess

IRA contributions, and missed required minimum distribution obligations. Accurate reporting reduces IRS penalty exposure and the need for follow-up notices.

Ten-Step Checklist

1. Step 1: Determine Whether Form 5329 Is Required

   Form 5329 is required when early distributions, excess contributions, or minimum required distributions apply during the tax year. The filing obligation depends on whether additional taxes apply or exceptions must be claimed beyond Form 1099-R coding.

   In some situations, early distribution penalties may be reported directly on Form 1040. Form

   5329 remains necessary when exceptions, Roth IRA recapture amounts, or excise tax calculations are involved.

2. Step 2: Identify All Early Distributions

   Review all Forms 1099-R issued for the tax year and identify distributions from qualified retirement plans taken before reaching age fifty-nine and one-half. These may include traditional

   IRAs, Roth IRAs, SIMPLE IRAs, or employer-sponsored retirement plans.

   Confirm distribution dates using Social Security Number records and plan statements. Correct identification determines whether early distributions trigger additional taxes under IRS Form

   5329.

3. Step 3: Determine the Taxable Portion of Distributions

   Only the taxable portion of early distributions is subject to the ten percent additional tax.

   Amounts properly rolled over or excluded under tax regulations are not included in the calculation.

   Use Federal Form 8606 when basis recovery applies for individual retirement arrangements.

   This step ensures that the taxable income reported on Form 1040 matches the amounts used for Form 5329 computations.

4. Step 4: Gather Supporting Documentation

   Collect Forms 1099-R, Forms 8606, and IRA custodian statements related to distributions and contributions. Documentation supporting exceptions should be retained with tax records rather than routinely attached to them.

   Education savings accounts, Archer MSA activity, or qualified medical expenses require clear substantiation. These records support compliance if reviewed by the Internal Revenue Service.

5. Step 5: Complete Part I Line 1

   Enter the total amount of taxable early distributions included in income on Part I, Line 1 of Form

   5329. This amount should align with pension and annuity income reported on Form 1040.

   Do not itemize each transaction on the form itself. Maintain detailed schedules separately to support the summarized figure reported.

6. Step 6: Identify Applicable Exceptions

   Determine whether any distributions qualify for exceptions such as disability, death, education savings account expenses, or substantially equal periodic payments. Exceptions vary depending on whether distributions came from IRAs or qualified plans.

   Apply exception rules carefully to avoid misstatements. Incorrect assumptions are a common source of IRS penalty assessments and correspondence.

7. Step 7: Report Exceptions on Line 2

   Enter the portion of early distributions excluded from additional taxes on Line 2 and include the appropriate exception code. For 2016, exception codes range from 01 through 12.

   Ensure the excluded amount does not exceed taxable distributions reported on Line 1. Accurate exception coding is critical for proper processing.

8. Step 8: Calculate the Additional Tax

   Subtract Line 2 from Line 1 to determine the amount subject to the additional tax. Multiply the result by ten percent to compute the standard IRS penalty.

   If the distribution involves a SIMPLE IRA within two years of participation, apply the 25% rate as required. Review plan participation dates carefully.

9. Step 9: Address Excess Contributions and RMD Shortfalls

   Determine whether excess IRA contributions or missed minimum distributions apply for the tax year. These situations trigger separate excise tax calculations within Form 5329.

   Review IRA contribution limits, prior-year carryovers, and required minimum distribution calculations. Excess contributions and mandatory distributions are reported in different parts of the form.

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10. Step 10: Final Review and Filing

    Verify that amounts flow correctly from Form 5329 to Form 1040 or Form 1040NR, and that exception codes are accurate. Confirm SIMPLE IRA and Roth IRA rules were applied correctly.

    Attach Form 5329 to the appropriate tax return or file it separately if required. Retain all supporting documentation in accordance with IRS recordkeeping standards.

    After Filing: What Happens Next

    If additional taxes increase the balance due, timely payment helps reduce interest and potential state taxes tied to the federal return. When a refund is expected, confirm direct deposit details carefully.

    If the Internal Revenue Service questions an exception or calculation, responses typically rely on retained records rather than attachments. Use the IRS website to obtain transcripts or replacement Forms 1099-R if needed.

    If you’re missing tax documents or want to ensure the numbers you enter match IRS records, we can help.