IRS Form 5329 Instructions: Early Withdrawals, Excess Contributions, Missed RMDs

IRS Form 5329 instructions come into play when you owe an additional tax on a retirement account, a Coverdell ESA, an ABLE account, an HSA, or an Archer MSA. The form is where you report the penalty, apply any exception you qualify for, and, in the case of a missed required minimum distribution, ask the IRS to waive the tax altogether. Penalties on the form range from 6% for excess contributions to 25% for the biggest RMD shortfalls, and getting the entries right is what stands between paying the full amount and paying little or nothing.

Do You Actually Need to File Form 5329

Not every early withdrawal requires this form. If your Form 1099-R shows distribution code 1 in box 7, you owe the standard 10% additional tax on the entire taxable amount, and you have no exception to claim, you can skip Form 5329. Report the 10% directly on Schedule 2 (Form 1040), line 8, and check the box indicating no Form 5329 is required.

File the form if any of these apply: the distribution code on your 1099-R is wrong, you qualify for an exception the plan administrator didn’t reflect, you made excess contributions to an IRA or HSA, or you missed an RMD. If you’re claiming an exception the 1099-R doesn’t already account for, Form 5329 is the only place to get credit for it.

Part I: The 10% Tax on Early Retirement Distributions

Part I handles the 10% additional tax on distributions taken before age 59½ from qualified retirement plans and IRAs. The 10% is layered on top of the ordinary income tax you already owe on the withdrawal, so an early distribution can be expensive fast.

There is one important rate change to know. If you withdraw from a SIMPLE IRA within the first two years of participating in the plan, the penalty is 25% of the taxable amount, not 10%.¹ After two years, SIMPLE IRA early withdrawals drop back to the standard 10%.

The mechanics of Part I are short. On line 1 you enter the full taxable distribution. On line 2 you enter any amount that qualifies for a statutory exception, along with the two-digit code identifying which exception you’re using. Line 3 is the difference. Line 4 is 10% of line 3, and that number carries to Schedule 2 of your Form 1040.²

Exception Codes That Reduce or Eliminate the Penalty

Federal law lists a number of situations that remove the 10% penalty, though you still owe regular income tax on the distribution. Each has a two-digit code you enter on line 2. The commonly used ones include:³

Code 01, separation from service at 55 or older. Applies to employer plans, not IRAs.
Code 02, substantially equal periodic payments. Once started, must continue at least five years or until you reach 59½, whichever is later.
Code 03, disability. You must be unable to engage in any substantial gainful activity due to a condition expected to last indefinitely or result in death.
Code 05, unreimbursed medical expenses exceeding the Section 213 threshold, whether or not you itemize.
Code 08, higher education expenses from an IRA for you, your spouse, children, or grandchildren. Tuition, fees, books, and required supplies qualify; room and board do not.
Code 09, first-time homebuyer, up to a $10,000 lifetime cap from an IRA. “First-time” means no home ownership in the prior two years.⁴

Other penalty-free scenarios include distributions after the account owner’s death, distributions to pay health insurance premiums while unemployed, distributions taken because of an IRS levy on the account, and payments to an alternate payee under a qualified domestic relations order.

SECURE 2.0 Exceptions Added in 2024

Newer categories under SECURE 2.0 carry their own exception codes on Part I:

Emergency personal expense distributions, up to $1,000 per year for unforeseeable or immediate personal or family needs. Repayable within three years, and you cannot take another until the first is repaid or offset by new contributions.⁵
Domestic abuse victim distributions, up to the lesser of $10,000 (indexed) or 50% of the account balance, repayable within three years.
Terminal illness distributions for those certified by a physician as having a condition expected to result in death within 84 months.

Enter the correct code even when your plan administrator already put one on the 1099-R. If the 1099-R shows generic code 1 or a wrong code, Form 5329 is where you correct the record.

Part II: Coverdell ESA and ABLE Account Distributions

Part II is the 10% additional tax on non-qualified distributions from Coverdell Education Savings Accounts and ABLE accounts. Pull earnings out of a Coverdell for something other than qualified education expenses and the earnings portion faces both ordinary income tax and the 10%.⁶

The 10% doesn’t apply to distributions made after the beneficiary’s death or disability, distributions offset by a tax-free scholarship, or Coverdell distributions taken because the beneficiary attended a U.S. military academy. Excluded amounts go on line 6 of Part II.

Parts III Through VII: The 6% Tax on Excess Contributions

Parts III through VII cover excess contributions to traditional IRAs, Roth IRAs, Coverdell ESAs, Archer MSAs, HSAs, and ABLE accounts. The rate is the same across all of them: 6% of whatever excess remains in the account at year-end.⁷ The tax compounds every year the excess stays in the account. A $2,000 excess Roth contribution left alone for three years costs $120 in each of those years.

Know the limits before you decide whether you have an excess. For 2026, the annual IRA limit is $7,500 across all traditional and Roth IRAs combined, plus a $1,100 catch-up if you’re 50 or older.⁸ For HSAs, the 2026 limit is $4,400 for self-only coverage and $8,750 for family coverage, plus $1,000 catch-up at 55 or older.⁹ Roth IRA contributions also phase out above certain income levels, so staying under the dollar cap alone isn’t always enough.

Fixing an Excess Contribution

The cleanest fix is to withdraw the excess plus any earnings on it before your tax filing deadline, including extensions. Do that and no 6% tax applies for the year. The earnings withdrawn are included in gross income for the year the excess was made and may themselves face the 10% early distribution penalty if you’re under 59½.

The custodian usually calculates the net income attributable to the excess using a formula based on the account’s gains or losses while the excess sat in the account.¹⁰ If the account lost money, the attributable earnings can be negative and you’d pull out less than the original excess.

Miss the deadline and the 6% applies to whatever excess is in the account on December 31. You can chip away at it in later years by contributing less than the limit, letting the unused room absorb prior-year excess. Meanwhile the 6% keeps accruing on whatever remains. Form 5329 tracks this year over year with a multi-line calculation that carries forward the uncorrected excess.

Part IX: The Missed RMD Penalty

Part IX is for the tax on failing to take a full required minimum distribution. The rate is 25% of the shortfall between the amount you should have withdrawn and the amount you actually did.¹¹ SECURE 2.0 dropped it from 50%.

Roth IRAs have no RMDs during the original owner’s lifetime.¹² Traditional IRAs, 401(k)s, 403(b)s, and other tax-deferred accounts do. Your starting age depends on your birth year: born January 1, 1951 through December 31, 1959, RMDs begin the year you turn 73; born on or after January 1, 1960, they begin the year you turn 75.¹³

Cutting the Rate From 25% to 10%

SECURE 2.0 created a correction window. If you withdraw the missed amount and file a return reflecting the tax within that window, the rate drops from 25% to 10%. The window runs from the date the tax is imposed until the earliest of three events: the IRS mails a notice of deficiency, the IRS assesses the tax, or the last day of the second tax year after the year of the shortfall.¹¹ In practice, that gives you roughly two years to catch and fix the miss at the lower rate.

Requesting a Full Waiver

The IRS can waive the entire tax if you show reasonable cause and that you’ve corrected the shortfall. Reasonable cause arguments that tend to work include an error by your financial institution in calculating or processing the distribution, serious illness, or incorrect advice from a tax professional. “I forgot” or “I didn’t know” don’t get much traction.

To request the waiver on Part IX, enter the actual shortfall, write “RC” next to the line calculating the tax, and enter zero as the penalty amount. Attach a letter explaining what went wrong and what you did to fix it.¹² Withdraw the missed amount as soon as you notice, ideally before filing. The IRS wants to see the problem already fixed, not just that you plan to fix it.

Filing the Form: Attached, Standalone, or Prior Year

In most cases Form 5329 is attached to Form 1040 and filed with your return by the regular deadline, including extensions.⁶ All penalty amounts flow to Schedule 2 (Form 1040), line 8. Married couples who both owe additional taxes file separate Form 5329s attached to the joint return.

You can also file it as a standalone return. That happens when you owe a penalty but aren’t otherwise required to file, or when you’re requesting an RMD waiver for a prior year. Standalone filings need your name, address, Social Security number, and signature on the form. They have to go by paper mail; electronic filing isn’t available for a standalone Form 5329. If tax is due, include a check or money order payable to the United States Treasury.

For prior-year corrections, use the version of Form 5329 from the year in question. Pair it with Form 1040-X if you’re also changing other items on that year’s return. If the only fix is the Form 5329 penalty, file the prior-year Form 5329 by itself.

One Reason to File Even When You Owe Nothing

For 2022 and later tax years, if you didn’t file Form 5329, the IRS has six years to assess an excise tax on a missed RMD. If you did file the form, the standard three-year statute of limitations applies. Some taxpayers make a “zero filing,” submitting a Form 5329 that reports no penalty and attaching documentation showing the full RMD was taken. That starts the three-year clock. Without it, the IRS could look at your RMD compliance up to six years later. For large retirement accounts, the shorter limitations period is worth the extra paperwork.

1
Internal Revenue Service. SIMPLE IRA Withdrawal and Transfer Rules
2
Internal Revenue Service. Form 5329 – Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts
3
Office of the Law Revision Counsel. 26 USC 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts
4
Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
5
Internal Revenue Service. Notice 2024-55 – Certain Exceptions to the 10 Percent Additional Tax Under Code Section 72(t)
6
Internal Revenue Service. Instructions for Form 5329 – Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts
7
Office of the Law Revision Counsel. 26 USC 4973 – Tax on Excess Contributions to Certain Tax-Favored Accounts and Annuities
8
Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500
9
Internal Revenue Service. Revenue Procedure 2025-19
10
eCFR. 26 CFR 1.408-11 – Net Income Calculation for Returned or Recharacterized IRA Contributions
11
Office of the Law Revision Counsel. 26 USC 4974 – Excise Tax on Certain Accumulations in Qualified Retirement Plans
12
Internal Revenue Service. Instructions for Form 5329
13
Congress.gov. Required Minimum Distribution (RMD) Rules for Original Owners