Form 5329 2022 Printable, Fillable PDF – All of us understand the need to put money aside for the future, but what happens if you contribute more than the yearly maximum to your retirement or health savings account (HSA)? What happens if you need to take money out of an IRA before you reach retirement age, or if you take money out of a 529 plan and don’t use it for eligible higher education costs as you planned?
Form 5329 is a tax form that may be used to assess potential IRS fines resulting from the conditions stated above and to obtain a penalty waiver if necessary. Due to the fact that Form 5329 is required for each person who may be liable for a penalty, married couples filing jointly must complete separate forms for each of them.
What Exactly Is Form 5329?
There are three scenarios in which you could need this form:
- Early withdrawals from a tax-favored account are prohibited.
- Contributions to a tax-favored account in excess of what is required
- Failure to make the minimum distributions required by law
We’ll go into more depth on each of these three topics in turn.
Distributions Are Made In Advance
As a general rule, you should not withdraw money from your IRA or 401(k) until you reach the age of 5912. If you do, the IRS will charge you a 10 percent penalty for withdrawing your money too soon, unless you qualify for one of the exceptions. The following are some of the most often seen exceptions to the 10 percent penalty:
- disability. You are now completely and permanently handicapped.
- Levy by the Internal Revenue Service You make a withdrawal in order to settle an IRS levy on your account.
- Expenses associated with medical treatment According to your tax return, it was spent on medical expenses that exceeded 7.5 percent of your adjusted gross income.
- Health insurance is needed. While you were jobless, you took money out of your account to pay for health insurance.
- military. According to the rules, you’re a member of the military reserves who has been summoned to active service for more than 179 days.
You may also be able to avoid fines for early withdrawals from IRAs (but not from 401(k)s) if you meet the guidelines outlined below:
- Higher education costs more money. It was used to cover the cost of tuition, fees, books, and other essential materials for you and your spouse, as well as for your child or grandchild.
- purchase of a first-time house. If you are buying your first home, you may take up to $10,000 (or $20,000 if you are married) from your 401(k) to assist with the purchase.
Other withdrawals, such as those from a 529 plan or a Coverdell educational savings account (ESA), that are not used to pay for eligible educational expenses may also be subject to a 10% penalty.If the account beneficiary gets a tax-free scholarship or financial support from an employer, or if the account beneficiary is a student at a U.S. Military Academy, you may be eligible for an exemption.
In addition, withdrawing funds from an HSA and not utilizing them to pay for medical expenses out of pocket may result in a penalty.
In order to take an early distribution from an eligible account, you must submit either Part 1 or Part 2 of Form 5329, depending on whether you owe the penalty or qualify for an exemption.
Contributions In Excess Of What Is Required
Many tax-favored accounts, such as IRAs, 401(k)s, health savings accounts, education savings accounts, and ABLE accounts, have annual contribution restrictions.
The following are the donation restrictions for 2021:
- Contribute $6,000 to a Roth IRA or Traditional IRA ($7,000 if you are 50 years or older).
- Contributions to a 401(k), 403(b), or 457 plan of $19,500 (with an extra $6,500 in catch-up contributions for those over the age of 50) are permitted.
- Individuals may contribute $3,650 to an HSA, while families can contribute $7,300 to an HSA.
- Put $1,000 into a Coverdell college savings account.
- contribution of $15,000 to an ABLE account.
If you make a contribution that exceeds the permissible maximum, you have until the end of the tax filing season or the end of the tax extension period to withdraw your excess contributions. If you fail to meet that deadline, the Internal Revenue Service will assess a penalty equal to 6 percent of the excess amount for each year that it stays in your account.
For the purpose of calculating the penalty, you’ll fill out Parts 3, 4, 5, 6, 7, or 8 of Form 5329. There is a part for each kind of account, so you only need to complete the piece that applies to your account—for example, Part 3 for an Individual Retirement Account (IRA) or Part 4 for a Roth Individual Retirement Account (IRA).
The Specified Minimum Distribution Was Not Met
According to federal regulations (k), you must begin taking required minimum distributions, or RMDs, from your traditional IRA or 401(k) when you reach the age of 72. According to an IRS spreadsheet, the amount you must take is based on the entire value of all of your tax-deferred retirement accounts divided by your expected life expectancy, which you may calculate yourself. Traditional IRAs allow you to take money out of one or more accounts by adding up all of your traditional IRA balances, dividing the amount by the life expectancy factor, and withdrawing the money from one or more accounts. With 401(k)s and 403(b)s, on the other hand, you must calculate and remove the appropriate amount from each account independently from the others.
Your financial institution or IRA custodian, on the other hand, will often determine your required minimum distribution for you.
However, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) temporarily suspended mandatory minimum distributions for all kinds of retirement plans for the calendar year 2020, so you may want to consider deferring your RMD until after the end of the calendar year 2020.
In other years, if you do not withdraw the bare minimum from your plan, you may face severe consequences: The Internal Revenue Service will tax you 50% of the amount you fail to claim on time. If you failed to take the required minimum distribution because of sickness, mental disability, or a bank mistake, you may be eligible to have the penalty waived.
Part 9 of Form 5329 is where you’ll figure out how much you owe in penalties. The letters “RC” (for reasonable cause) and the amount of the deficit you want waived should be entered on the dotted line adjacent to Line 54 in order to seek a waiver. If you have any questions, please contact [email protected].
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