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| 2024 | 2025 | |
| IRA (Traditional and Roth) | $7,000 | $7,000 |
| SIMPLE IRA | $16,000 | $16,500 |
| 401(k) and SARSEP | $23,000 | $23,500 |
| SIMPLE 401(k) | $16,000 | $16,500 |
| ESAs | $2,000 | $2,000 |
People 50 and older can also make catch-up contributions, which are additional contributions over and above the listed amounts, to retirement accounts. Anything over and above these amounts is considered an overcontribution, which triggers a penalty.
You must also fill out Form 5329 if you don’t take the required minimum distributions (RMD), which is the minimum amount of money that you can withdraw from these accounts after you reach a certain age. If you reached age 73 in 2024, your first RMD would be due by April 1, 2025. Your second RMD would then be due December 2025.
Excess contributions must be withdrawn by the tax-filing deadline for IRAs and by June 1 of the following year for ESAs. Any amount not removed by the deadline may be subject to a 6% excise tax for each year the excess amount remains in the account. This tax may also apply to ineligible rollovers, ineligible transfers, and excess simplified employee pension (SEP) contributions unless they are corrected in a timely manner.
Other Circumstances Requiring Form 5329
Other circumstances may require you to file Form 5329, including:
- When you receive a distribution from a retirement plan that meets an exception to the early distribution penalty but the exception is not indicated on the Form 1099-R or Form 1099-Q issued by the issuer or account custodian. In this case, you must complete Part l of Form 5329.
- If you receive a distribution from a retirement account that does not meet any exception to the penalty and if the issuer mistakenly indicates that an exception applies. The individual must complete Part l of Form 5329.
- When you receive a distribution from a college savings plan, such as a Coverdell education savings account, but it wasn’t used for eligible education expenses, you don’t meet an exception to the early distribution penalty. In this case, you should complete Part II of Form 5329.
According to the IRS, you aren’t required to pay the 10% penalty on an early distribution if all or part of the distribution was rolled over from a qualified retirement plan. Details on how to report the rollover can be found on IRS Form 1040 or 1040-SR in lines 4a and 4b or 5a and 5b.
Watch Out for Errors
The issuer may not always make the proper indication on the form. Let’s assume that an individual received distributions via a substantially equal periodic payment (SEPP) program from the IRA. However, instead of using Code 2 in Box 7 of Form 1099-R, the issuer used Code 1, which means that no exception applies.
This could lead the IRS to believe the amount reported on Form 1099-R is not part of the SEPP. It will appear that the person has violated the SEPP program and now owes the IRS penalties plus interest on all past distributions that occurred as part of the SEPP.
Fortunately, the individual can rectify this error by filing Form 5329.
What Does Form 5329 Include?
You must include your personal details at the top of Form 5329, including:
Form 5329 is divided up into several parts, which means you must complete the section(s) that apply to your circumstances as follows:
- Part I: Additional Tax on Early Distributions
- Part II: Additional Tax on Certain Distributions From Education Accounts and ABLE Accounts
- 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 Health Savings Accounts (HSAs)
- Part VIII: Additional Tax on Excess Contributions to an ABLE Account
- Part IX: Additional Tax on Excess Accumulation in Qualified Retirement Plans (Including IRAs)
Form 5329 must Form 1040: U.S. Individual Tax Return or Form 1040-SR: U.S. Tax Return for Seniors by the tax filing deadline or extension date (if you have one).
Keep in mind that you may be responsible for additional forms in certain circumstances. For instance, you must complete Form 8853: Archer MSAs and Long-Term Care Insurance Contracts if you’re filling out Part VI. Or, you may need to file Form 8606: Nondeductible IRAs to determine the amount of the distribution that is subject to the early distribution penalty for Roth IRAs.
The IRS may waive the tax on excess contributions if you can show that the shortfall was due to reasonable error and that you are taking appropriate steps to remedy it. You may want to consult with a tax professional for assistance with requesting the waiver from the IRS if you believe you qualify.
How to File Form 5329
You can fill out Form 5329 manually using the form from the IRS website. Once complete, submit it with your annual tax return and mail it to the IRS. The form can also be filled out electronically using tax preparation software or by using the services of a professional tax preparer.
The forms must be filed by the individual’s due date for filing their tax return, including extensions. If the form is filed for a previous tax year, the form applicable to that tax year should be used.
Failure to use the form for the correct tax year may result in the penalty being applied to the wrong year.
You can download all pages of Form 5329 from the IRS website.
What Is an ‘Early’ Withdrawal from a Retirement Account?
An early withdrawal is one made before the account holder reaches age 59½ unless the taxpayer qualifies for one of the exceptions to the rule.
The IRS imposes a 10% penalty for an early withdrawal unless the money is withdrawn for certain purposes. That’s on top of any income taxes owed on the money withdrawn.
There are a number of these exceptions and the list changes from time to time. Current exceptions are made for educational expenses, a first-time home purchase, medical expenses, and more.
When Do I Have to Withdraw Money From My Retirement Account?
As of the 2024 tax year, the age at which a retirement account holder must begin making annual withdrawals is 73. The amount you must withdraw is based on the amount of money in the account and your life expectancy. The tax return instructions include a table to help you calculate the amount.
Who Pays the Penalty for IRAs?
You are generally responsible for paying the penalty on IRAs, including those for excess contributions. In some cases, your IRA custodian or plan trustee is now allowed to pay the penalty on your behalf as long as there are enough funds in the account.
When submitting a distribution request, you should elect to have amounts withheld only for federal and state tax, if applicable. Penalties must be paid directly to the IRS, and are usually recorded on your tax return.
The Bottom Line
The IRS offers a number of long-term savings plans that help taxpayers save for retirement, for a child’s college education, or for miscellaneous healthcare costs. However, every one of those accounts comes with rules that ensure they are used correctly and that the IRS gets the money it’s due sooner or later. Form 529 is primarily used to report instances of uses of one of these accounts that might not meet the rules.
