IRS Form 5329 Instructions: Penalties, Exceptions, and Missed RMDs

IRS Form 5329 is where you report and calculate the additional taxes owed on retirement accounts, Coverdell ESAs, ABLE accounts, HSAs, and Archer MSAs — and where you claim the exceptions or waivers that can wipe those penalties out. These instructions for Form 5329 walk through each part of the form: the 10% tax on early distributions, the 6% tax on excess contributions, and the 25% tax on missed required minimum distributions. Penalties run from 6% to 25% depending on what happened, so getting the right lines and exception codes on the form is the difference between paying and not paying.

When You Can Skip Form 5329 Entirely

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

File Form 5329 if any of the following apply: the 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. The form is your only route to claim an exception the 1099-R doesn’t show.

Part I: The 10% Tax on Early Distributions

Part I handles the additional tax on distributions from qualified retirement plans and IRAs taken before age 59½. The 10% applies to the taxable portion of the withdrawal, on top of regular income tax.

The mechanics are short. On line 1, enter the full taxable distribution. On line 2, enter any amount that qualifies for a statutory exception and the two-digit code that identifies which one. Line 3 is the remainder — the amount actually subject to the penalty. Line 4 applies the 10% and carries the result to Schedule 2 of your Form 1040.

One rate change to watch for: if you withdraw from a SIMPLE IRA within your first two years of participation, the penalty is 25%, not 10%.¹ After the two-year mark it drops to the standard 10%.

Exception Codes That Eliminate the 10%

Each exception has a two-digit code you write on line 2. You still owe regular income tax on the distribution, but the additional 10% goes away. The most commonly used codes:²

Code 01 — Separation from service during or after the year you turned 55. Employer plans only, not IRAs.
Code 02 — Substantially equal periodic payments based on life expectancy. Once started, the series must continue at least five years or until you reach 59½, whichever is later.
Code 03 — Disability that prevents substantial gainful activity and is expected to last indefinitely or result in death.
Code 05 — Unreimbursed medical expenses above the Section 213 threshold, whether or not you itemize.
Code 08 — Qualified higher education expenses (tuition, fees, books, required supplies) from an IRA for you, your spouse, children, or grandchildren. Room and board do not qualify.
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.³

Other penalty-free situations 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 added three newer categories, each with its own code:⁴

Emergency personal expenses, up to $1,000 per year, repayable within three years. You can’t take another one until the first is repaid or offset by new contributions.
Domestic abuse victim distributions, up to the lesser of $10,000 (indexed) or 50% of your account balance, repayable within three years.
Terminal illness, when a physician certifies a condition expected to result in death within 84 months.

Even if your 1099-R already shows an exception code, check it. If the administrator used the generic code 1 or picked the wrong code, Part I of Form 5329 is where you correct the record.

Part II: Coverdell ESA and ABLE Account Distributions

Part II applies the same 10% additional tax to non-qualified distributions from Coverdell Education Savings Accounts and ABLE accounts. The earnings portion of a non-qualified withdrawal is taxed as ordinary income and hit with the 10%.⁵

The 10% does not apply to distributions made after the beneficiary’s death or disability, distributions offset by a tax-free scholarship, or Coverdell ESA distributions made because the beneficiary attended a U.S. military academy. Enter those excluded amounts on line 6.

Parts III Through VII: Excess Contributions

Parts III through VII cover excess contributions to traditional IRAs, Roth IRAs, Coverdell ESAs, Archer MSAs, HSAs, and ABLE accounts. Each account type has its own part. The penalty is identical across all of them: a 6% excise tax on whatever excess remains in the account at year-end.⁶

The 6% compounds every year the excess sits there. A $2,000 over-contribution to a Roth IRA left alone for three years costs $120 each year, all three years.

How to Fix an Excess Contribution

The clean fix is to withdraw the excess plus any earnings on it before your tax filing deadline including extensions. Do that and no 6% applies for the year. The earnings you pull out are included in your gross income for the year of the original excess, and if you’re under 59½ those earnings can also be hit with the 10% early distribution penalty.

Your IRA custodian typically calculates the earnings attributable to the excess. If the account lost value while the excess was there, the amount you withdraw can be smaller than the original excess contribution.

Miss the deadline and the 6% applies to whatever excess sits in the account on December 31. You can absorb the excess in a later year by contributing less than the limit and letting the unused room offset it, but the 6% keeps running on any amount that hasn’t been withdrawn or absorbed. The form carries uncorrected excess forward from prior years through a multi-line calculation.

Part IX: Missed Required Minimum Distributions

Part IX is where you handle a missed RMD. The penalty is 25% of the shortfall between the amount you were required to take and the amount you actually took.⁷ SECURE 2.0 dropped it from 50%, but 25% is still steep.

Roth IRAs are outside this rule: they have no RMDs during the original owner’s lifetime.⁸ Traditional IRAs, 401(k)s, 403(b)s, and other tax-deferred accounts all require annual withdrawals once you hit the applicable starting age, which is 73 or 75 depending on your birth year.⁹

Cutting the Penalty From 25% to 10%

SECURE 2.0 built in a correction window. If you withdraw the missed amount and file a return reflecting the tax during that window, the penalty drops from 25% to 10%. The window runs from the date the penalty is imposed until the earliest of three events: the IRS mails you a notice of deficiency, the IRS assesses the tax, or the last day of the second tax year after the year the penalty was triggered.⁷

In practice, that’s roughly two years from December 31 of the year you missed the distribution to catch it and pay the reduced rate.

Requesting a Full Waiver for Reasonable Cause

The IRS can waive the penalty entirely if you show reasonable cause and that you’ve fixed the shortfall. Custodian error, serious illness, and incorrect advice from a tax professional are the arguments the IRS generally entertains. “I forgot” and “I didn’t know” tend not to work.

To request the waiver, complete Part IX showing the actual shortfall, write “RC” next to the line calculating the penalty, and enter zero as the penalty amount. Attach a letter explaining what happened and what you did to correct it.⁸ Take the missed distribution before you file, not after. The IRS wants to see the mistake already fixed.

How and When to File

Most of the time, Form 5329 is attached to your Form 1040 and filed by the regular deadline, extensions included.⁵ The penalty totals flow to Schedule 2 (Form 1040), line 8.¹⁰ If you and your spouse both owe additional taxes, each files a separate Form 5329 with the joint return.

You can also file Form 5329 as a standalone return. This happens when you owe a penalty but aren’t otherwise required to file that year, or when you’re requesting an RMD waiver for a prior year. Include your name, address, Social Security number, and signature. Standalone filings go by paper mail; there’s no electronic filing option for a standalone Form 5329. Include a check or money order payable to the United States Treasury if you owe.

For prior-year corrections, use the version of Form 5329 for the tax year in question. If you’re changing other items on that year’s return too, submit the prior-year Form 5329 with a Form 1040-X. If the only fix is the penalty itself, the prior-year Form 5329 can go in by itself.

Why Some People File Even When They Don’t Owe Anything

Filing status affects how long the IRS can come after you on an RMD. For 2022 and later tax years, if you didn’t file Form 5329, the IRS has six years to assess the excise tax on a missed RMD. File the form and the standard three-year statute of limitations applies instead.

That’s the logic behind a “zero filing”: some taxpayers submit a Form 5329 showing no penalty owed, with documentation that the full RMD was taken, purely to start the three-year clock. It’s optional, and whether the paperwork is worth it depends on the size of your accounts, but for larger balances the shorter limitations period has real value.

1
Internal Revenue Service. SIMPLE IRA Withdrawal and Transfer Rules
2
Office of the Law Revision Counsel. 26 USC 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts
3
Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
4
Internal Revenue Service. Notice 2024-55 – Certain Exceptions to the 10 Percent Additional Tax Under Code Section 72(t)
5
Internal Revenue Service. Instructions for Form 5329 – Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts
6
Office of the Law Revision Counsel. 26 USC 4973 – Tax on Excess Contributions to Certain Tax-Favored Accounts and Annuities
7
Office of the Law Revision Counsel. 26 USC 4974 – Excise Tax on Certain Accumulations in Qualified Retirement Plans
8
Internal Revenue Service. Instructions for Form 5329
9
Congress.gov. Required Minimum Distribution (RMD) Rules for Original Owners
10
Internal Revenue Service. Form 5329 – Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts