Tax-favored retirement accounts like IRAs, 401(k)s, and other qualified plans are essential tools for building long-term wealth. However, if you take an early distribution, fail to take required minimum distributions (RMDs), or contribute more than allowed, the IRS may impose additional taxes. In such cases, you may be required to file Form 5329 – Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts.
This blog provides an in-depth explanation of Form 5329—who must file it, when it’s needed, what penalties it covers, and how to use it to request waivers for certain tax penalties.
What Is Form 5329?
Form 5329 is an IRS form used to report and calculate additional taxes on retirement and other tax-favored savings accounts when certain rules are broken. These rules typically involve premature withdrawals, excess contributions, or missed distributions.
Form 5329 helps taxpayers remain compliant with IRS regulations and gives them the opportunity to pay any additional tax—or request a waiver if eligible—when one of these mistakes occurs.
Who Must File Form 5329?
You may need to file Form 5329 if any of the following apply:
- You withdrew funds early from an IRA or other retirement plan (before age 59½)
- You contributed more than the annual limit to your IRA, Roth IRA, or other tax-favored account
- You failed to take required minimum distributions (RMDs) after age 73 (formerly 72)
- You received a distribution subject to additional tax that wasn’t reported on Form 1040 or 1040-SR
- You want to claim an exception to the 10% early withdrawal penalty
Situations That Trigger the Use of Form 5329
1. Early Distribution Penalty (10%)
If you take money out of your retirement account before reaching age 59½, you may be subject to a 10% early withdrawal penalty. Form 5329 is used to report this penalty—or to claim an exception if applicable (e.g., disability, medical expenses, higher education costs).
2. Excess Contributions
If you contribute more than the allowed limit to an IRA, Roth IRA, Coverdell ESA, HSA, Archer MSA, or ABLE account, a 6% excise tax applies for each year the excess remains in the account. Use Form 5329 to calculate and pay this tax.
3. Missed RMDs (50% Penalty)
Once you reach age 73, you’re required to begin taking minimum distributions from traditional IRAs and certain retirement plans. If you fail to withdraw the required amount, a steep 50% excise tax applies on the shortfall—reported and paid using Form 5329.
4. Other Plan-Related Penalties
The form is also used for:
- Additional taxes on excess contributions to HSAs and MSAs
- Additional taxes on early distributions from Coverdell ESAs or 529 plans
- Penalties related to ABLE account excesses or premature distributions
Structure of Form 5329
Form 5329 is divided into eight parts, each dealing with a specific category of penalty:
- Part I: Additional tax on early distributions
- Part II: Additional tax on certain distributions from qualified retirement plans
- Part III: Additional tax on excess contributions to traditional IRAs
- Part IV: Additional tax on excess contributions to Roth IRAs
- Part V: Additional tax on excess contributions to Coverdell ESAs
- Part VI: Additional tax on excess contributions to Archer MSAs
- Part VII: Additional tax on excess contributions to HSAs
- Part VIII: Additional tax on excess contributions to ABLE accounts
You only need to complete the parts relevant to your situation.
How to Complete Form 5329
Filing this form involves the following steps:
- Determine which parts apply to your tax issue (e.g., early distribution, excess contribution).
- Calculate the applicable additional tax (e.g., 10% of early withdrawal, 6% of excess contribution).
- Fill out the corresponding sections with the required information.
- Transfer the calculated additional tax amount to Schedule 2 of Form 1040 (Line 8).
Requesting a Waiver of Penalties
You may request a waiver of the 50% RMD penalty if your failure to withdraw the required amount was due to reasonable error and you are taking steps to correct it. To do so, you must:
- Complete Part IX of Form 5329
- Attach a statement explaining the error and the steps taken to remedy it
- Write “RC” (for reasonable cause) and the amount to be waived next to line 54
The IRS will review your request and notify you if the waiver is granted.
How to File Form 5329
Form 5329 can be filed in two ways:
- With your tax return: Attach it to Form 1040 or 1040-SR
- As a stand-alone form: If you are not otherwise required to file a return, Form 5329 can be submitted by itself
If submitting alone, mail Form 5329 to the IRS address for your state as listed in the form instructions.
Common Mistakes to Avoid
- Failing to report early withdrawals and triggering unexpected penalties
- Overlooking the need to file for RMD shortfalls
- Not correcting excess contributions promptly
- Failing to attach a waiver request statement
IRS Publications and Help
Conclusion: Stay Compliant and Protect Your Retirement Assets
Form 5329 may not be well-known, but it plays a vital role in ensuring compliance with IRS regulations for retirement and other tax-advantaged accounts. Whether it’s correcting a mistake, paying a penalty, or requesting a waiver, this form gives taxpayers the opportunity to proactively address issues and avoid additional scrutiny.
If you find yourself dealing with early withdrawals, missed RMDs, or excess contributions, filing Form 5329 properly is essential. Consider working with a tax professional to ensure accuracy and explore your eligibility for waivers that could reduce or eliminate unnecessary tax penalties.
