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February 23, 2009

Form 5329

Your Guide

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Definition

IRS Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, should be filed if the account owner does any of the following:

  • Received an early distribution from a Roth IRA, and any of the amount is subject to the early distribution penalty
  • Received an early distribution from a retirement plan (other than a Roth IRA) and distribution code 1 is not shown in box 7 of Form 1099-R
  • Meets an exception to the tax on early distributions and distribution code 1 is shown in box 7 of Form 1099-R, or 7 of the Form 1099-R does not indicate an exception or the exception does not apply to the entire distribution.
  • Received taxable distributions from Coverdell ESAs or qualified tuition program QTPs.
  • The contributions (for the year for which the Form is being filed),  to the individual’s  traditional IRAs, Roth IRAs, Coverdell ESAs, Archer MSAs, or HSAs exceed the maximum contribution limit, or he/she had a tax due from an excess contribution on the previous year’s Form 5329
  • Did not receive the minimum required distribution from your qualified retirement plan. In this case the individual would be subject to the excess accumulation penalty

Referring Cite

Instructions for Forms 5329 , Form 5329

Additional Helpful Information

  • The IRS has provided written confirmation that taxpayers who are requesting a waiver of the excess accumulation penalty, should not pay the penalty upfront. The following statement was included in a Special Edition issue of their Employee Plan news :  

    “The recently-released 2007 Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, reflects a change in IRS policy for taxpayers who miss taking their required minimum distribution from an IRA because of a reasonable error. Taxpayers who feel they meet the reasonable cause criteria set out in IRC §4974(d) are now allowed to not pay the 50% excise tax when they file their Form 1040. The Instructions for Form 5329, under Waiver of Tax on page six, instruct taxpayers to attach a statement of explanation, complete Part VIII of the form, make the appropriate “RC” annotation, and enter the amount they want waived on line 52.”

  • If the account owner is filing Form 5329 for a prior year, he/she must use that year’s version of the form. If there are no other changes related to the tax return, and the individual had not previously filed a federal income tax return for that year, he/she should file Form 5329 by itself. If there are other changes, he/she should file Form 5329 for that year with Form 1040X, Amended U.S. Individual Income Tax Return.
  • If the account owner does not  have to file an income tax return for the year,  he/she should complete and file Form 5329 by itself at the time and place that he/she would be required to file Form 1040 or Form 1040NR.  His/her address should be included on page 1 and his/her signature and the date on page 2. He/she should enclose, but not attach, a check or money order payable to “United States Treasury” for any taxes due. He/she should write his/her SSN and “2007 Form 5329” on the check.

Written By

Denise Appleby

Denise is CEO of Appleby Retirement Consulting Inc., a firm that provides IRA resources for financial/ tax/legal professionals. She has over 20 years of experience in the retirement plans field, which includes training and technical consultation.

Denise writes and publishes educational /marketing tools for advisors; available at http://irapublications.com. Denise co-authored several books on IRAs

Denise is a graduate of The John Marshall Law School, where she obtained a Masters of Jurisprudence in Employee Benefits, and has earned 5 professional retirement designations.
She has appeared on numerous media programs, sharing her insights on retirement tax laws.

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