What Form 5329 (2020) Is For
IRS Form 5329 2020 is used when an account owner must report additional taxes related to early withdrawals, excess IRA contributions, or missed required minimum distributions from a retirement account. It applies to activities involving traditional IRAs, Roth IRAs, SEP IRAs, SIMPLE IRA plans, and other qualified plans when the taxpayer must pay taxes on the taxable portion of distributions or claim an exception from taxation. The form also covers situations involving inherited IRA distributions, unreimbursed medical expenses, terminal illness, Roth conversions, and other qualified distributions that follow different rules.
Form 5329 helps determine whether early distributions before age 59 incur the early withdrawal penalty or whether certain exceptions allow penalty-free treatment. It is also used when withdrawing money from a retirement plan under specific circumstances, such as making substantially equal periodic payments, being on active duty for qualified military reservists called to service, or making distributions following the owner’s death. A taxpayer uses this form whenever withdrawals, contributions, or earnings from a traditional or Roth IRA are generally subject to additional tax during the tax year.
When You’d Use Form 5329
A taxpayer uses Form 5329 when early withdrawals occur from an IRA or retirement plan and the exception applies, but does not appear on Form 1099-R. It also applies to excess IRA contributions that carry over into a subsequent year, early distributions from a SIMPLE IRA within two years of participation, withdrawals from an inherited IRA with incorrect timing, and distributions related to substantially equal payments. It is required when taxpayers must pay taxes due to missed required minimum distributions, incorrect Roth IRA contributions, or when an IRS levy does not remove penalty obligations.
Form 5329 is used when qualified military reservists called to active duty receive distributions, when medical expenses exceed the AGI threshold, or when unemployment compensation affects AGI calculations for penalty exceptions. The form must also be filed when a taxpayer withdraws money under certain conditions that are generally subject to additional tax, such as earnings withdrawals, first contribution errors, or income from securities or bank accounts inside a retirement plan. It is also used when taxpayers require tax advice for complex circumstances to ensure the correct amount of tax is paid for the tax year.
For complete details on wage reporting, withholdings, and tax filings, see our guide for Individual Credit & Deduction Forms.
Key Rules or Details for 2020
For the 2020 tax year, required minimum distributions were waived, meaning an IRA owner did not need to take the first required minimum distribution or any subsequent withdrawals usually required by federal rules. Early distributions before age 59 remained generally subject to the early withdrawal penalty unless certain exceptions applied, including unreimbursed medical expenses, terminal illness, or substantially equal periodic payments based on life expectancy. Rules for Roth IRA distributions continued to treat contributions as tax-free, while earnings and conversion amounts were subject to tax when the distribution did not qualify as a qualified distribution.
Excess traditional or Roth IRA contributions remained subject to a 6 percent penalty until removed or absorbed in a subsequent year. Early SIMPLE IRA withdrawals within the first two years of participation incurred a 25 percent penalty unless the exception applies. Different rules apply to inherited IRA distributions, active-duty withdrawals, and distributions following the owner’s death, and each requires the taxpayer to determine the taxable portion and whether certain conditions allow for penalty relief.
Step-by-Step (High Level)
Step 1: Determine which sections apply
A taxpayer reviews distribution forms, IRA statements, Roth conversions, and contribution logs. This identifies the applicable penalties or exceptions.
Step 2: Gather supporting documents
A taxpayer gathers the following documents:
- Forms 1099-R showing the taxable portion and distribution codes
- Statements showing IRA contributions for the tax year
- Records showing unreimbursed medical expenses
- Documentation showing qualified military reservists called to active duty
- Life expectancy tables for substantially equal payments
- Records documenting that the exception applies
Each document supports a different part of the form, and accuracy is essential when calculating tax.
Step 3: Complete the necessary parts
The taxpayer completes only the parts that apply. Each section calculates a different penalty or adjustment. The taxpayer enters the total subject to tax, applies the correct exception, and determines the penalty or tax owed.
Step 4: Transfer totals to Form 1040
When filing with a federal tax return, the taxpayer transfers the total from Form 5329 to Schedule 2 of Form 1040. If filing Form 5329 by itself, the taxpayer signs and mails the form with payment.
Learn more about how to avoid business tax problems in our guide on How to File and Avoid Penalties.
Common Mistakes and How to Avoid Them
- Assuming an exception applies automatically to early distributions: File Form 5329 to claim the correct exception when Box 7 shows code 1, ensuring the 10% penalty is waived correctly.
- Exceeding combined IRA contribution limits: Track all traditional and Roth IRA deposits across institutions to avoid making excess contributions.
- Misunderstanding inherited IRA rules: Follow beneficiary distribution schedules and required timelines to avoid unnecessary penalties.
- Paying RMD penalties that may be waived: Request a waiver by filing Form 5329 with a reasonable-cause explanation when a required minimum distribution is missed.
- Overlooking differences between IRA types and rules: Review IRS guidance for early withdrawals, excess contributions, and inherited IRAs to ensure accurate reporting and compliance.
What Happens After You File
After Form 5329 is filed, the IRS processes the form along with the taxpayer’s return or as a standalone submission, applying taxes withheld or penalties owed. The agency may request additional information when circumstances involving early distributions, excess IRA contributions, or inherited IRA withdrawals are unclear. When taxpayers request relief for missed required minimum distributions, the IRS determines whether the exception applies and whether penalty-free treatment is allowed.
If tax is due, the taxpayer must pay it promptly to avoid interest or future collection actions such as an IRS levy. Corrections continue in a subsequent year if excess contributions remain or if the account owner must withdraw money to meet distribution requirements. Taxpayers may need tax advice to ensure rules are correctly followed, especially when dealing with complex investing situations, withdrawals, or distributions involving multiple retirement plans.
FAQs
What counts as an early distribution?
An early distribution occurs when a taxpayer withdraws money from an IRA or retirement account before reaching the age of 59½. It is generally subject to the 10 percent early withdrawal penalty unless an exception applies.
Does Form 5329 cover Roth IRA withdrawals?
Form 5329 applies when Roth IRA withdrawals include earnings or converted amounts that do not meet the requirements of qualified distributions.
How can a taxpayer fix excess IRA contributions?
A taxpayer may withdraw the excess and associated earnings or use contribution limits in a future year to absorb the excess.
Were required minimum distributions required in 2020?
Required minimum distributions were waived for the 2020 tax year for all retirement accounts, including inherited accounts.
Can Form 5329 be filed by itself?
Yes, a taxpayer who does not need to file Form 1040 may file Form 5329 alone.
How do substantially equal periodic payments work?
Substantially equal periodic payments allow penalty-free withdrawals based on life expectancy tables.
For more resources on filing or understanding prior-year IRS forms, visit our Form Summaries and Guides Library or see our IRS assistance guide.
