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IRS Form 5329 Instructions: How To File Retirement Plan Tax Form

IRS Form 5329 is a very important aspect of any American’s retirement plan. Today’s article explains what Form 5329 is, when to file it, and how to file it.

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In this article:

  1. IRS Form 5329 Instructions: When and How to File
  2. Retirement Programs Where Tax Form 5329 Applies
  3. How to Determine If You Need to File
  4. Excess Accumulation Penalty
  5. Assistance for Filing Tax Form 5329
  6. Filing Exceptions and Form 5329 Exception Codes

Form 5329: Everything You Need to Know About How to File Form 5329

IRS Form 5329 Instructions: When and How to File

The Internal Revenue Service (IRS) requires American taxpayers to use Form 5329 to report additional taxes on any qualified retirement plan. It also compels the taxpayer to fill out this form when their distribution income from any qualified retirement plan exceeds the allowable amount.

When taxpayers neglect to fill out and submit this form, they may end up paying more taxes than necessary. Intentionally refusing to file Form 5329 can cost them even more by way of penalties from the Internal Revenue Service.

Retirement Programs Where Tax Form 5329 Applies

As mentioned earlier, Tax Form 5329 applies to any qualified retirement plan. To be more specific, these include:

In some cases, the IRS taxes distributions from such retirement plans. However, a taxpayer’s withheld taxes may not be enough even if they’re under a 10% additional tax.

For this reason, taxpayers need to estimate their distributions-related-payments and report them using Form 5329.

How to Determine If You Need to File

Some instances that require taxpayers to file Form 5329 include:

When a taxpayer makes distributions before they turn 59 ½ years old, they need to pay an early withdrawal penalty. The penalty is 10% of the early distribution amount, though there are some exceptions to the rule.

An example of an exempted early distribution is a rollover. The IRS doesn’t penalize a portion, or the entirety of the early distribution a taxpayer rolls over to another qualified retirement program.

For example:

When a taxpayer exceeds the annual IRA contribution limits, which is $6,000 for those younger than 50 and $7,000 for those who are 50 years and older, he or she needs to accomplish and file Form 5329, too.

Taxpayers have to withdraw excess contribution for the year from their IRA before the IRA tax-filing deadline. Otherwise, they have to pay an excess tax of 6% per year that the excess contribution stays in their IRA.

Excess Accumulation Penalty

Taxpayers who didn’t take RMDs from their retirement accounts on or before their annual deadlines must also accomplish Form 5329. The IRS requires this under the excess-accumulation penalty rule, which applies to the following retirement accounts:

The excess accumulation penalty is 50%. This applies to the RMD requirement shortfall, which is the amount in distributions the taxpayer didn’t take.

To clarify, let’s say a taxpayer’s annual RMD is $4,000, with the distributions for the year being $3,000. The taxpayer has to pay a 50% penalty of $500 on the remaining $1,000 that should’ve distributed for the year.

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Assistance for Filing Tax Form 5329

Not sure how to fill out Form 5329?

For those who feel confused, overwhelmed, and anxious about filing Tax Form 5329 correctly and on time, there’s good news. There are many professionals across the country, such as CPAs and tax preparers, who can do it on their behalf.

Also, the IRS provides free tax assistance services via its IRS-VITA (volunteer income tax assistance) program.

For those who don’t want to be reliant on other people for filing Tax Form 5329 correctly and punctually, here are some important things you need to know for filing it.

Filing Exceptions and Form 5329 Exception Codes

The IRS exempts several kinds of retirement account distributions from filing Form 5329, which are expressed as codes. These Form 5329 filing exceptions include:

Correct and timely filing of Form 5329 need not be hard or complicated. Whether you file it yourself or hire a professional to do it for you, keeping the things you read in this article in mind will help you avoid paying unnecessary taxes and penalties to the IRS.

Are you among those who need to file Form 5329 and if so, what’s your key takeaway from this article? Tell us in the comments section below.

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Editor’s Note: This post was originally published on October 2, 2019, and has been updated for quality and relevancy.