What Is the Purpose of Federal Tax Form 5329?

What Is the Purpose of Federal Tax Form 5329?

The purpose of the federal tax Form 5329 is to indicate whether an individual with a retirement plan or ESA owes the IRS the 10 percent early-distribution or other penalties, according to Investopedia. Form 5329 is entitled, "Additional Taxes on Qualified Retirement Plans (including IRAs) and Tax-favored Accounts."

Transactions that require filling of Form 5329 include early distributions, excess contribution and excess accumulation, according to Investopedia. With early-distribution, an individual receives retirement distribution before the age of 59.5 attracting an early-distribution penalty of 10 percent. The excess contribution is subject to six percent penalty if not withdrawn before the deadline while excess accumulation attracts a 50 percent penalty of the amount needed to meet the required minimum distribution.