What Form 5329 (2017) Is For
IRS Form 5329 (2017) is used to report taxes that apply when a taxpayer takes early withdrawals, makes an excess contribution, or fails to take required distributions from retirement plans or a Roth IRA. It helps the account owner calculate penalties, excise tax, and taxable income that may apply when contributions or distributions exceed the annual limit for the calendar year.
The form also covers excess contributions to an HSA account, Coverdell ESA, and other plans when the excess contribution remains after the tax filing deadline. Taxpayers use it to report the correct amount of taxes owed and ensure that earnings and distributions are correctly applied in accordance with IRS rules.
When You’d Use Form 5329
A taxpayer must file Form 5329 when withdrawals from retirement plans or a Roth IRA are subject to penalty or when excess contributions exceed the maximum limit allowed by law. The form applies if an account owner does not take a required distribution, contributes more than the limit, or fails to withdraw excess money by the due date.
Form 5329 is also required when filing a federal tax return that includes early distributions, taxable income from corrected contributions, or separate calculations for an HSA. If a user does not need to file a full return, the form can be filed separately to report taxes applicable to the situation.
For complete details on wage reporting, withholdings, and tax filings, see our guide for Individual Credit & Deduction Forms.
Key Rules or Details for 2017
For 2017, excess contributions to IRAs and HSAs are taxed at 6 percent each following year the excess contribution remains in the account. Early withdrawals are generally subject to a 10 percent penalty, unless an eligible exception applies. The IRS requires taxpayers to follow specific instructions to calculate the correct penalty.
Contribution limits for the year cannot exceed the annual limit or maximum limit allowed by income and filing status. A taxpayer must track earnings, contribution dates, and distributions to avoid mistakes, especially when income, employer plans, or investing circumstances create changes that apply in a future year.
Step-by-Step (High Level)
Step 1: Identify the parts of the form that apply
The taxpayer reviews each section to determine which penalties apply to their situation, including early withdrawals, excess contributions, or missed distributions.
Step 2: Gather account information
The taxpayer collects Forms 1099-R, account statements, and other documents showing withdrawals, contributions, earnings, and the corresponding dates.
Step 3: Calculate penalty amounts
The taxpayer follows the instructions for each part of the form to determine the penalty amounts that apply to early withdrawals, excess contributions, or missed distributions.
Step 4: Apply exceptions when eligible
The taxpayer enters exception numbers when permitted by law to avoid penalties. Each exception must be tailored to the specific situation and comply with the applicable eligibility rules.
Step 5: Report final figures on the federal tax return
The calculated penalties are reported on the federal tax return for the same year. When filing separately, the taxpayer completes Form 5329 with personal information and signs the form.
For more information about IRS assistance, including help with your tax questions and payment options, see this comprehensive guide.
Common Mistakes and How to Avoid Them
- Reporting early withdrawals without verifying an exception: Confirm the exception fits the situation and keep records supporting the correct IRS exception number.
- Incorrectly handling excess contributions: Track all contributions and withdraw any excess (plus earnings) by the deadline to avoid recurring excise taxes.
- Misapplying Roth IRA ordering rules: Follow the IRS sequence for Roth withdrawals, and confirm conversions do not trigger taxable or penalized early distributions.
- Overlooking limits when converting to a Roth IRA: Ensure income and timing requirements are met before converting to avoid unexpected taxes or penalties.
- Missing opportunities to correct contribution errors: Submit timely corrections and file an amended return when needed to reduce or eliminate penalties.
What Happens After You File
After Form 5329 is filed with a federal tax return, the IRS reviews the form to ensure taxes and penalties were correctly calculated and applied to the account. If the IRS identifies an error, the taxpayer may be required to pay additional taxes, or the agency may send a notice requesting further information about the distribution or contribution.
If an excess contribution remains in the account, taxes will continue to be applied each subsequent year until the amount is withdrawn or corrected. Taxpayers should track contributions, report any corrections after April when required, and ensure the exact amount is removed to avoid additional penalties in the following year.
FAQs
When does IRS Form 5329 (2017) apply to excess contributions?
IRS Form 5329 (2017) applies when excess contributions exceed the annual limit for the calendar year and create an excise tax. The account owner must withdraw the exact amount and earnings by the tax filing deadline. If the excess contribution remains after the due date, penalties apply the following year under IRS rules.
How does a Roth IRA distribution create taxable income or penalties?
A Roth IRA distribution may be taxed when early withdrawals include earnings that are not tax-free. Taxpayers must track contributions, dates, and investing methods to ensure the correct figure is calculated. If withdrawn early, the distribution may be subject to penalty and additional income tax under federal law.
What should an account owner do if excess contributions to an HSA account are not removed on time?
Excess contributions to an HSA account must be withdrawn by the tax filing deadline, or an excise tax applies each future year. The user must report the same amount as taxable income on the federal tax return, as well as the earnings that were removed. If the excess contribution remains, the account is subject to penalties that continue until the contribution is corrected.
How does Form 5329 apply to missed distributions from retirement plans?
Missed distributions from retirement plans are subject to a penalty calculated on the amount not withdrawn during the year. Taxpayers may request relief when circumstances prevent them from making timely withdrawals. The IRS reviews the form, instructions, and supporting resources to determine whether the situation qualifies for a penalty waiver.
Can IRS Form 5329 (2017) be filed separately from a federal tax return?
The form can be filed as a separate submission when taxpayers do not need a full federal tax return for the year. The IRS still requires complete reporting of income, contributions, and distributions. Taxpayers must ensure each account and contribution is applied correctly to avoid mistakes or penalties.
How does a taxpayer complete a correction after April for an excess contribution?
A correction after April requires the user to withdraw the exact amount and follow IRS instructions for reporting taxable income and earnings. If the excess contribution remains, the excise tax applies for each following year. Taxpayers must track dates, contributions, and methods to ensure proper adjustment under applicable law.
Do employees in employer retirement plans need Form 5329 when limits are exceeded?
Employees may need the form when employer retirement plans produce excess contributions, early withdrawals, or taxable income. When contributions exceed the maximum limit, the situation may be subject to excise tax or additional penalties. Taxpayers should remain aware of plan limits, track their contributions, and follow the IRS's methods to avoid future errors.
For more resources on filing or understanding prior-year IRS forms, visit our Form Summaries and Guides Library or see our IRS assistance guide.
