If you pulled money out of a retirement account early, put too much into an IRA, or forgot to take a required withdrawal, there is a specific IRS form waiting for you. Most people have never heard of it until a penalty shows up.
That form is Form 5329, Additional Taxes on Qualified Retirement Plans (Including IRAs) and Other Tax-Favored Accounts. You use Form 5329 to report and pay the extra taxes the IRS charges when something goes sideways with a tax-favored account, and the total flows onto Schedule 2 of your Form 1040. The good news is that the penalties are often smaller than people fear, and in some cases you can avoid them entirely by filing correctly. This guide walks through what the form is, the additional taxes it covers, the exceptions, and when you actually need to file it.
The form is built in parts, one for each kind of problem.
You only fill out the part that applies to your situation, so a missed required minimum distribution and an excess contribution never get tangled together.
IRS Form 5329 is used to report additional taxes on qualified plans, IRAs and other tax-advantaged accounts. This tax form is how you report and pay additional taxes to the Internal Revenue Service when a tax-favored account trips a rule.
It exists because tax-favored accounts come with rules, and breaking one leaves you subject to an additional tax on top of your regular income tax. Those additional taxes on IRAs and similar accounts are exactly what this form settles. The form covers three big situations: taking money out too early, putting too much in, and not taking enough out when the rules require it. It is used to calculate the additional taxes on qualified retirement plans and IRAs in each of those cases, and the amount you owe carries to Schedule 2 on your income tax return. Unlike a lot of IRS forms, it is organized by account type and problem, so you complete only the relevant part.
This is a report-and-pay form, not a planning tool.
By the time you are filling it out, the event has already happened, and the form is how you report additional taxes and settle up with the IRS directly.
The most common reason people meet the form is an early withdrawal from a retirement account.
If you take money out of an IRA or a qualified retirement plan before age 59½, the withdrawal is generally hit with a 10% additional tax on top of the ordinary income tax you already owe on it. That is the early withdrawal penalty most people have heard of. Your Form 1099-R reports the payout, and the amount reported on Form 1099-R, box 7, carries a code showing how it should be treated. This applies to IRA distributions and distributions from qualified retirement plans alike, whenever money leaves an IRA or other qualified retirement plan too soon. When the code shows an early distribution with no exception, that 10% applies, and Part I is where it gets calculated.
The 10% is the price of early access.
It applies to traditional IRAs, 401(k)-style plans, and similar accounts, and it is meant to discourage tapping retirement money before you actually retire.
Here is what a lot of people miss: the 10% has a long list of exceptions, and the form is how you claim them.
If your withdrawal qualifies for an exception but your Form 1099-R does not reflect it, you enter the correct exception code here so you are not overcharged. The exceptions include withdrawals for qualified higher education expenses, unreimbursed medical expenses above a threshold, health insurance premiums while unemployed, a first-time home purchase, total disability, and a qualified reservist distribution, among others. Each one has its own code on Part I, and qualified tuition and education costs count too. See Form 5329 exceptions in the instructions, since you are required to file the form to claim one. Claiming an exception can knock the penalty down to zero, but only if you file the form to report it.
The exception does not apply itself.
If you qualify for an exception and just skip the form, the IRS sees an untaxed early withdrawal and bills you for the 10%, so filing is what protects you.
The second situation is putting more into an account than the rules allow.
If you contribute more than your limit to an IRA, education savings accounts like a Coverdell, a health savings account, or an ABLE account, the extra amount is subject to a 6% excise tax for each year it stays in the account. That is worth repeating: the 6% is not a one-time hit, it repeats every year the excess sits there. You use Form 5329 to report additional amounts here, completing the part that reports excess contributions and calculating the tax the 5329 to report additional taxes covers. The way to avoid it is to withdraw the excess, plus any earnings on it, by the due date of your tax return, including extensions, before the 6% ever applies.
Time is the enemy here.
Catch it early and pull the money out, and you owe nothing, but leave it and the 6% quietly stacks up year after year.
The third situation is not taking enough out, and this is the one with the most outdated fear attached to it.
Once you reach the required age, you have to take a required minimum distribution, or RMD, from your traditional IRA and most retirement plans each year. If you fail to take the minimum required distribution, you owe a penalty, and Part IX of Form 5329 calculates the taxes owed on the shortfall. This used to be a brutal 50%, but under SECURE 2.0 the penalty is now 25% of the amount you failed to withdraw, and it drops to just 10% if you take the missed distribution and correct the error within the correction window. You can also request a waiver of the penalty for reasonable cause by taking the required distribution from your IRA, entering the amount on Part IX, and writing "RC" with an explanation.
The 50% number people still quote is history.
Between the reduced rate and the reasonable-cause waiver, a missed RMD is usually far less painful than it first looks.
Not every penalty means you must file this form, and knowing the difference saves work.
For the 2025 tax year, as in any tax year, you are required to file Form 5329 whenever you are claiming an exception to the 10% penalty, reporting excess contributions, or requesting a waiver for a missed RMD. If you only owe the additional tax and do not otherwise have to file an income tax return, you have to submit it on its own, signed and dated, with payment. But you don't have to file Form 5329 in one common case: if your Form 1099-R shows a plain code 1 early distribution, the full 10% applies, and you claim no exception, the penalty can be reported directly on Schedule 2 of Form 1040 without the separate form.
The rule of thumb is simple.
If you are fighting the penalty or reporting a contribution or RMD problem, you file the form, and if you are just paying a straightforward 10%, you often do not.
For a CPA firm, Form 5329 is a small form where the right exception code or waiver request can save a client real money.
Spotting which of the nine parts applies, entering the correct exception, coordinating related forms like Form 4972 for lump-sum distributions, and drafting a reasonable-cause waiver for a missed distribution is detailed work that rewards knowing the current rules and the Instructions for Form 5329. At Madras Accountancy, we help U.S. CPA firms handle Form 5329 and the tax preparation around retirement account penalties, from claiming the right exceptions to filing accurate waiver requests, backed by clean bookkeeping on each client's accounts.
The goal is paying the smallest penalty the law allows.
Handle the exceptions and waivers correctly, and a client owes only what they truly should, with the form to prove it.
This article is general information, not tax advice, so check the current Form 5329 and its instructions or a tax professional for your situation.
What is Form 5329 used for? Form 5329, Additional Taxes on Qualified Retirement Plans (Including IRAs) and Other Tax-Favored Accounts, is used to report additional taxes on retirement and other tax-favored accounts. It covers the 10% early distribution tax, the 6% excess contribution tax, and the tax on missed required minimum distributions, all flowing to Schedule 2 of Form 1040.
When do I have to file Form 5329? You must file it when you claim an exception to the 10% early withdrawal penalty, report excess contributions, or request a waiver for a missed required minimum distribution. If you only owe an additional tax and do not otherwise file a return, you file it by itself with payment.
When do I not need to file Form 5329? If your Form 1099-R shows a plain code 1 early distribution, the full 10% additional tax applies, and you are not claiming any exception, you can report the penalty directly on Schedule 2 of Form 1040 without the separate form.
What is the penalty for an early distribution? Taking money from an IRA or qualified retirement plan before age 59½ is generally subject to a 10% additional tax, on top of the regular income tax on the withdrawal. Several exceptions can reduce or eliminate it, and you claim them on Part I of Form 5329.
What are the exceptions to the 10% penalty? Common exceptions include qualified higher education expenses, large unreimbursed medical expenses, health insurance premiums while unemployed, a first-time home purchase, total disability, and a qualified reservist distribution. Each has an exception code you enter on Form 5329 to claim it.
How much is the penalty for excess contributions? Excess contributions to an IRA, Coverdell education savings account, health savings account, or ABLE account are subject to a 6% excise tax for each year the excess remains. You avoid it by withdrawing the extra amount and any earnings by your tax return due date, including extensions.
What is the penalty for missing an RMD? Under SECURE 2.0, the penalty for missing an RMD is 25% of the shortfall, reduced to 10% if you correct it within the correction window. It was 50% in the past. You can also request a waiver for reasonable cause on Part IX of Form 5329.
How do I request an RMD penalty waiver? Take the missed required distribution from the account, complete Part IX of Form 5329, enter the shortfall, and write "RC" with a short reasonable-cause explanation. The IRS often grants the waiver when you have corrected the error and shown a good reason.
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