What Form 5329 2018 Is For
IRS Form 5329 (2018) is used to report penalties tied to early withdrawals, excess contributions, and missed distributions from a retirement plan or other qualified plans. Taxpayers use it when they take early distributions before age 59, contribute too much to a traditional IRA or Roth IRA, or fail to withdraw the full amount required from a retirement account. The form helps determine the taxable portion of withdrawals, whether an exception applies, and the amount of tax that must be paid.
The form applies to situations involving IRA withdrawals, unreimbursed medical expenses, disability, terminal illness, substantially equal periodic payments, and active duty for qualified military reservists called to service. It also covers SIMPLE IRA rules, Roth IRA contributions, Roth conversions, and penalties for taxpayers who fail to withdraw money on time. Form 5329 ensures federal income taxes are calculated correctly when a distribution is generally subject to penalties under certain conditions.
When You’d Use Form 5329
A taxpayer uses Form 5329 when taking an early withdrawal from a retirement account that is subject to the 10 percent early withdrawal penalty or when claiming certain exceptions to the 10 percent penalty. The form is also required for excess IRA contributions, excess Roth IRA contributions, or when a taxpayer fails to make a required distribution from traditional IRAs or retirement plans. It is filed for the tax year when the withdrawal, excess contribution, or missed distribution occurred.
Form 5329 is required when the taxpayer must withdraw funds but did not, had taxes withheld incorrectly, or needs to correct penalties from a subsequent year. Individuals who receive income from early distributions, loans, cash payouts, or employer plans use the form to document penalties and exceptions. A legal advisor or tax advisor may be helpful when determining whether the exception applies or whether the taxpayer must pay taxes on earnings or contributions.
Key Rules or Details for 2018
For tax year 2018, early withdrawals from traditional or Roth IRAs and retirement plans are generally subject to a 10% penalty, unless certain exceptions apply. These exceptions include unreimbursed medical expenses above the threshold, disability, substantially equal payments, terminal illness, and active duty for qualified military reservists. SIMPLE IRAs carry a higher 25 percent penalty if the taxpayer takes a withdrawal within two years of the first contribution.
Excess contributions to IRAs or Roth IRAs result in a 6 percent penalty for each subsequent year the excess remains. Required minimum distributions begin at age 70½, and failing to take the distribution may result in a 50 percent penalty on the amount not withdrawn. Rollovers, qualified distributions, and Roth conversions may be tax-free when completed in accordance with IRS rules. Life expectancy tables help determine the required amounts.
For complete details on wage reporting, withholdings, and tax filings, see our guide for Individual Credit & Deduction Forms.
Step-by-Step (High Level)
Step 1: Gather Records
A taxpayer should gather Forms 1099-R, account statements, contribution records, and documents showing distributions, earnings, and account values. These records help determine the taxable portion of distributions and whether contributions exceed annual limits.
Step 2: Complete the Relevant Parts of Form 5329
A taxpayer completes only the sections that apply to the distributions or contributions made during the tax year. Each part of IRS Form 5329 (2018) addresses a specific type of penalty or exception, and the taxpayer must follow the instructions for the corresponding section.
- The taxpayer enters early distributions in Part I and includes the appropriate exception code when the exception applies.
- The taxpayer reports education and ABLE account distributions in Part II and determines whether any portion is taxable.
- The taxpayer reports excess traditional IRA contributions in Part III and excess Roth IRA contributions in Part IV.
- The taxpayer reports excess contributions for HSAs, Archer MSAs, Coverdell ESAs, and ABLE accounts in Parts V through VIII and calculates the related penalties.
- The taxpayer calculates the penalty for missed required minimum distributions or requests a waiver in Part IX after determining the full amount that should have been withdrawn.
Step 3: Determine Penalties or Exceptions
A taxpayer calculates penalties based on the taxable portion of early withdrawals or the amount of excess contributions. When a distribution qualifies for certain exceptions, the taxpayer must enter the correct code. If the taxpayer missed a required minimum distribution, a reasonable cause explanation must accompany the waiver request.
Step 4: Attach the Form and Pay Taxes
A taxpayer attaches Form 5329 when filing a federal income tax return or mails it separately when allowed. Taxes should be paid when submitting the form. Payments may be made electronically or by check.
Common Mistakes and How to Avoid Them
- Assuming exceptions apply automatically: File Form 5329 when an exception must be claimed manually to ensure it is appropriately recognized.
- Counting a rollover as a contribution: Treat rollovers separately from contributions to avoid exceeding annual IRA limits.
- Exceeding contribution limits when filing jointly: Remember that each spouse has individual IRA limits, even when filing a joint return.
- Failing to correct excess contributions promptly: Withdraw excess amounts quickly to stop penalties from accruing each year.
- Using the wrong form year for penalties: File the Form 5329 version that matches the tax year—for example, use the 2018 form for 2018 penalties.
What Happens After You File
The IRS reviews Form 5329 and compares it with information from financial institutions. Additional taxes are added to the total amount owed or deducted from the refund. If something does not match, the IRS may request clarification. Interest accrues until penalties are paid in full.
When requesting a waiver for a missed required minimum distribution, the IRS reviews the explanation. Approval depends on whether reasonable cause exists. Processing times adhere to standard timelines for both paper and electronic filings.
FAQs
What situations require filing IRS Form 5329 2018?
A taxpayer files IRS Form 5329 2018 when early withdrawals, excess IRA contributions, or missed distributions occur in a retirement plan or retirement account. The form determines the taxable portion of early distributions and whether an exception applies under certain conditions during the tax year.
How does the early withdrawal penalty apply to IRA withdrawals?
The early withdrawal penalty applies when a taxpayer withdraws money from a traditional IRA or Roth IRA before age 59 and does not meet certain exceptions. The taxable portion of the withdrawal is generally subject to federal income tax and additional penalties, unless an exception applies.
Can Roth IRA contributions trigger penalties on Form 5329?
Roth IRA contributions may trigger penalties when they exceed annual limits or when income rules prevent a taxpayer from making a Roth IRA contribution. Excess funds remain subject to penalties each subsequent year until corrected, as per IRS rules for retirement plans and qualified plans.
When are exceptions available for early distributions?
An exception applies to early distributions under circumstances such as unreimbursed medical expenses, disability, substantially equal periodic payments, terminal illness, or active duty for qualified military reservists called to serve. These exceptions to the 10 percent penalty help taxpayers avoid additional tax when they qualify.
How does Form 5329 handle required minimum distributions?
Form 5329 helps determine penalties when a taxpayer does not withdraw the full amount required from traditional IRAs or retirement accounts. Missed withdrawals may be taxed at a rate of 0 percent unless the taxpayer provides an explanation for the circumstances and requests a waiver, which the IRS may approve based on factors such as life expectancy and financial circumstances.
For more resources on filing or understanding other IRS forms, visit our Form Summaries and Guides Library.
