This form is used to calculate extra taxes you might owe if you took money out of a retirement account (like an IRA or 401k) before you turned 59½. The government usually charges a 10% penalty on early withdrawals, unless you qualify for an exception.
Here’s how to fill it out step by step:
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Step 1: Line 1 — Early distributions includible in income
Write the total amount of money you took out early that counts as taxable income. For example, if you withdrew $5,000 from your IRA and it’s all taxable, write “5000” on line 1.
> 💡 Note: If this was a Roth IRA withdrawal, special rules apply — check instructions. But for most people, it’s just the full amount they took out.
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Step 2: Line 2 — Exceptions
If any part of that money qualifies for an exception (like using it for first-time home buying, medical expenses, etc.), write that amount here. Also, write the exception number from the IRS instructions in the blank space next to line 2.
> Example: If $1,000 of your $5,000 withdrawal was for qualified medical expenses, write “1000” on line 2 and put the correct exception number (like “6”) in the box.
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Step 3: Line 3 — Amount subject to additional tax
Subtract line 2 from line 1.
> Example: $5,000 – $1,000 = $4,000 → Write “4000” on line 3.
This is the amount that will be taxed at 10%.
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Step 4: Line 4 — Additional tax
Multiply line 3 by 10% (or 0.10).
> Example: $4,000 × 0.10 = $400 → Write “400” on line 4.
This is the extra tax you owe because you took the money out early.
Then, you report this $400 on Schedule 2 (Form 1040), line 8 — but only if you’re filing Form 5329 with your return.
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Caution: If any of the money came from a SIMPLE IRA and you took it out within 2 years of starting the plan, the penalty may be 25% instead of 10%. Check instructions if that applies.
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Final Answer:
To complete Part I of Form 5329:
- Line 1: Enter total early distribution amount included in income.
- Line 2: Enter amount qualifying for exceptions + exception number.
- Line 3: Subtract line 2 from line 1.
- Line 4: Multiply line 3 by 0.10 (10%) — this is your additional tax.
Example:
Line 1: 5000
Line 2: 1000 (exception #6)
Line 3: 4000
Line 4: 400
Parent Tip: Review the logic above to help your child master the concept of irs worksheet.
