What Form 5329 (2011) Is For
Form 5329 helps taxpayers report additional taxes on retirement accounts and other tax-favored plans for the 2011 tax year. It applies when someone takes an early distribution, makes an excess contribution, or does not meet the required minimum distribution rules. The form covers IRAs, employer retirement plans, HSAs, ESAs, and MSAs. Taxpayers use it to calculate these penalties and claim any exceptions allowed under IRS rules when the information is not already reflected on Form 1099-R.
When You’d Use Form 5329 (2011)
You would use Form 5329 when you need to report a penalty involving a retirement account or another tax-favored plan for the 2011 tax year. If no return was submitted for that year, it can be filed alone, but many taxpayers file it with their 2011 return. If a return was already filed, the form must be attached to Form 1040-X.
You may need it when claiming an exception to an early distribution, correcting excess contributions, or addressing a missed required minimum distribution. It is also required when the information on Form 1099-R does not display the correct distribution code or accurately reflect the situation. Find out how to address unfiled or incorrect tax returns—a key step if Form 5329 must be filed separately or attached to an amended return.
Visit the IRS Form Help Center to access guidance on completing Form 5329, filing amended returns, and correcting retirement plan reporting errors.
Key Rules or Details for 2011
Form 5329 for the 2011 tax year covers several IRS rules tied to retirement accounts and other tax-favored accounts. It helps taxpayers determine additional taxes associated with specific actions or missed requirements. The main areas include:
- 10% early distribution penalty for withdrawals from IRAs, Roth IRA accounts, or qualified retirement plans before age 59½, unless an exception applies
- 6% excess contribution penalty for amounts placed into IRAs, HSAs, or similar accounts that exceed the yearly limits
- 50% penalty for missed Required Minimum Distributions (RMDs) when a taxpayer does not take the amount required under the 2011 Internal Revenue Service rules
Some exceptions may reduce or remove these taxes. Typical examples involve disability, certain medical expenses, higher education costs, and first-home purchases. All contribution limits and distribution rules must follow the figures set for the 2011 tax year. Learn how penalty abatement may apply when taxpayers can show reasonable cause for missed RMDs or incorrect early withdrawal reporting.
Step-by-Step (High Level)
- Gather your documents: Start by collecting Forms 1099-R, 1099-SA, and 1099-Q, along with account statements, for traditional IRAs, qualified plans, health savings accounts, Coverdell ESAs, and Archer MSAs. You will also need details showing the taxable portion of each distribution and any withdrawn contributions that were not previously taxed
- Review the Form 5329 instructions: This helps determine which parts apply. Most taxpayers complete the sections for early distributions, excess contributions, or missed minimum distribution requirements.
- Report early distributions: In Part I, enter the income shown on Form 1099-R. If your withdrawal involved a Roth IRA, use Form 8606 to determine the taxable amount before entering it on the form.
- Calculate excess contribution penalties: Use the sections covering HSAs, Archer MSAs, or Education Savings Accounts to determine the yearly penalty associated with excess amounts.
- Report missed distributions: If you did not meet the required payout for the year, follow the lines related to your IRA or employer plan. The calculation relies on the rules in place for the 2011 tax year.
- Complete your tax return: Once the penalties are calculated, add the total to Schedule 2 so that it is reflected correctly in your tax return.
Common Mistakes and How to Avoid Them
- Filing when the form is not required: Some taxpayers submit Form 5329 even when the distribution code 1 on Form 1099-R is correct, and no exception applies. Check whether the penalty can be reported directly on the tax return before completing the form.
- Missing exception entries: Errors often occur in Part II, especially when an education account or a Coverdell Education Savings Account qualifies for an exception. Review each exception listed in the Form 5329 instructions and verify whether your situation qualifies before finalizing the form.
- Using the incorrect account balance: Taxpayers sometimes fail to use the correct December 31 value for individual retirement arrangements (IRAs), resulting in inaccurate calculations for both taxpayers and beneficiaries. Verify the prior year-end balance from your account statement before calculating the amount of the missed distribution.
- Incorrect amended filings: Issues arise when the wrong year’s form is used for an amended return or when the social security number is entered incorrectly. Ensure you use the correct year’s Form 5329 and carefully double-check all identifying information before submitting your filing.
- Not following IRS rules: Mistakes also occur when taxpayers overlook IRS guidelines for IRAs, 401(k)s, and other tax-advantaged accounts. Review the instructions thoroughly for the 2011 tax year and consult IRS.gov if you have any questions or concerns regarding the requirements.
Review IRS payment plan options that help taxpayers resolve retirement plan penalties reported on Form 5329 when immediate payment is not possible.
What Happens After You File
After you file Form 5329, the IRS adds any calculated penalties to your overall tax liability for the 2011 tax year. Your return reflects these amounts, including any entries carried forward to Schedule 2. If you owe additional tax, payment is due when you file to prevent interest from building. When you request relief for a missed distribution, the IRS reviews your explanation and may ask for supporting records. Maintaining clear documentation is helpful if the IRS has questions later.
FAQs
What penalties does Form 5329 cover for the 2011 tax year?
Form 5329 handles penalties for early withdrawals, excess contributions, and missed required minimum distributions tied to IRAs and other tax-favored accounts.
Do I need to file Form 5329 if my Form 1099-R already shows an early withdrawal?
You only need to file if you qualify for an exception, disagree with the distribution code, or are required to report another penalty.
Can Form 5329 be filed by itself?
Yes, if you did not file a tax return for 2011, Form 5329 can be filed alone. If you already filed, attach it to Form 1040-X.
What if I missed my 2011 RMD?
You can request relief by completing the missed distribution section and providing a written explanation to ask for a waiver of the 50% tax.
Can spouses file one Form 5329 together?
No, each spouse must complete a separate Form 5329 because retirement penalties apply to individual accounts, even when filing jointly.
