IRS Releases 2014 Form 5329 to Report Certain IRA Penalties

Tuesday, January 13, 2015

By Joe Cicchinelli, IRA Technical Expert
Follow Me on Twitter: @JoeCiccEdSlott

The IRS recently released the 2014 version of Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts. The form, along with the accompanying instructions, is updated each year and is filed by the IRA owner to report certain penalty taxes they may owe with respect to their IRA.

You generally need to file IRS Form 5329 if you received an early distribution from your IRA in 2014 and are subject to the IRS 10% early distribution penalty. An early distribution is a distribution you took before you reached age 59 ½. You would be subject to the 10% penalty on an early IRA distribution if no exception to the penalty applied. The exceptions to the penalty are rollovers, death (distributions to beneficiaries), disability, substantially equal periodic payments (72(t) payments), deductible medical expenses, first-time home buyer, higher education, Roth IRA conversions, IRS tax levy, and health insurance if you were unemployed. However, if distribution code 1 (early distribution no known exception) is correctly shown in box 7 of all of your Forms 1099-R, and you owe the 10% penalty, you do not have to file Form 5329. Instead, see the instructions for your federal income tax return (IRS Form 1040) line 59 for how to report the 10% additional tax directly on that line.

You would also file Form 5329 to pay the 6% penalty on excess IRA contributions and the 50% excess accumulation penalty for not taking your required minimum distribution (or not taking all of it).

Some tax pros are recommending that you file Form 5329 each year, even if you don’t owe any penalty taxes. The reason is because Form 5329 is considered a stand-alone tax return. If you don’t file a 5329, there is no statute of limitations for the IRS to go back and assess the penalties you might owe for the year. Generally, the statute of limitations for income taxes and penalties is three years from when you file your tax return or from the due date of that return, if that is later. But if you don’t file Form 5329, the IRS can potentially come after you well after three years as some very unhappy taxpayers have discovered.

Receive Ed Slott and Company Articles Straight to Your Inbox!
Enter your email address:

Delivered by FeedBurner

 

Post Views: 13
Posted in: , , ,

Content Citation Guidelines

Below is the required verbiage that must be added to any re-branded piece from Ed Slott and Company, LLC or IRA Help, LLC. The verbiage must be used any time you take text from a piece and put it onto your own letterhead, within your newsletter, on your website, etc. Verbiage varies based on where you’re taking the content from.

Please be advised that prior to distributing re-branded content, you must send a proof to [email protected] for approval.

For white papers/other outflow pieces:

Copyright © [year of publication], [Ed Slott and Company, LLC or IRA Help, LLC – depending on what it says on the original piece] Reprinted with permission [Ed Slott and Company, LLC or IRA Help, LLC – depending on what it says on the original piece] takes no responsibility for the current accuracy of this information.

For charts:

Copyright © [year of publication], Ed Slott and Company, LLC Reprinted with permission Ed Slott and Company, LLC takes no responsibility for the current accuracy of this information.

For Slott Report articles:

Copyright © [year of article], Ed Slott and Company, LLC Reprinted from The Slott Report, [insert date of article], with permission. [Insert article URL] Ed Slott and Company, LLC takes no responsibility for the current accuracy of this article.

Please contact Matt Smith at [email protected] or (516) 536-8282 with any questions.