Form 5329 reports the excise taxes that apply when retirement account rules are broken. SECURE 2.0 reduced the missed RMD penalty from 50% to 25%, and to 10% if corrected within the two-year window. The penalty is fully waivable for reasonable cause. Excess IRA contributions cost 6% per year until corrected. Early distributions before age 59 1/2 cost 10% unless an exception applies. Filing Form 5329 with a written explanation is often the difference between a hefty bill and zero owed.
Part I: 10% additional tax on early distributions under IRC §72(t) - before age 59 1/2 without an exception.
Part III: 6% tax on excess contributions to traditional IRAs under IRC §4973.
Part IV: 6% tax on excess contributions to Roth IRAs under IRC §4973.
Part VIII: 6% tax on excess HSA contributions and similar.
Part IX: 25% (or 10% corrected) tax on missed RMDs under IRC §4974, reduced from 50% by SECURE 2.0 §302.
SECURE 2.0 §302 (P.L. 117-328) made two changes effective for tax years beginning after December 29, 2022. First, it reduced the §4974 excise tax from 50% to 25% of the shortfall. Second, it created a "correction window" - if the missed amount is taken within roughly two years, the tax is further reduced to 10%.
| Tax Year | Default Rate | If Corrected Timely | Authority |
|---|---|---|---|
| Pre-2023 | 50% | 50% (no reduction available) | IRC §4974(a) before SECURE 2.0 |
| 2023 and forward | 25% | 10% | IRC §4974(a), (e) post-SECURE 2.0 §302 |
The correction window under IRC §4974(e)(4) runs from the original RMD due date and ends on the earliest of: (1) the date the IRS mails a notice of deficiency, (2) the date the IRS assesses the tax, or (3) the last day of the second tax year following the year the RMD was missed. For most taxpayers, option three controls - meaning a missed 2025 RMD generally has until December 31, 2027 to be corrected at the 10% rate.
Facts: Frank turned 73 in 2025. His IRA balance on December 31, 2024 was $400,000. The Uniform Lifetime Table factor for age 73 is 26.5. His 2025 RMD was $15,094 ($400,000 / 26.5). He took only $5,000 by December 31, 2025. Shortfall: $10,094.
Default 25% penalty: $10,094 x 25% = $2,524.
If corrected within window: He takes the $10,094 in March 2026, then files Form 5329 for 2025 reporting the 10% rate. Tax: $1,009.
With reasonable-cause waiver: He takes the $10,094, files Form 5329 with a written explanation. The IRS routinely grants the waiver if the shortfall was due to reasonable error and is corrected promptly. Tax owed: $0.
The §4974 penalty can be waived entirely if the taxpayer establishes the shortfall was due to reasonable error and is taking reasonable steps to remedy it. Procedure:
| Step | Action |
|---|---|
| 1 | Take the missed distribution as soon as possible - waiver requires the shortfall already corrected |
| 2 | Complete Form 5329 Part IX for the year the RMD was missed (use the year's version of the form) |
| 3 | On the line that would calculate the penalty, enter "RC" and the amount on which waiver is requested |
| 4 | Enter $0 on the tax line for waiver portion (or 10% if claiming the reduced rate without full waiver) |
| 5 | Attach a brief written explanation: what happened, why it was reasonable, and what was done to fix it |
| 6 | File with Form 1040 or as standalone if claiming for a prior year (use Form 1040-X if amended) |
The IRS grants waivers liberally when the shortfall is genuinely accidental and the taxpayer has already corrected it. Common qualifying reasons: serious illness, mental decline, divorce or death affecting account access, custodian error, advisor error, paperwork timing across multiple custodians. The bar is lower than most practitioners assume.
SECURE 2.0 §313 (P.L. 117-328) created a six-year statute of limitations for the §4974 missed-RMD excise tax (and the §4973 excess contribution tax), measured from the date the taxpayer's Form 1040 was filed. However, the IRS has stated the period applies only if Form 5329 was filed for each affected year. Without a filed Form 5329, the SOL never starts running - the IRS can come back years later to assess the tax.
| Filing Pattern | SOL on §4974 Tax |
|---|---|
| Filed Form 5329 each year | 3 years (per Couturier v. Commissioner reading) |
| Did not file Form 5329, no missed RMD | 6 years from Form 1040 filing |
| Did not file Form 5329, missed RMD never assessed | Open indefinitely |
The Tax Court in Couturier v. Commissioner, 162 T.C. 4 (2024), held that the new six-year statute under SECURE 2.0 is not retroactive to prior years for excess IRA contributions. Most practitioners read that decision as likely controlling the §4974 missed RMD penalty as well, though that specific question has not yet been litigated. Take this as the cautious reading: for pre-2023 missed RMDs, the assessment period remains indefinite without a Form 5329 filing.
| Birth Year | RMD Begins at Age | Authority |
|---|---|---|
| Before July 1, 1949 | 70 1/2 (pre-SECURE) | Pre-SECURE rule |
| July 1, 1949 - 1950 | 72 | SECURE Act 1.0 §114 |
| 1951 - 1959 | 73 | SECURE 2.0 §107 |
| 1960 or later | 75 | SECURE 2.0 §107, effective 2033 |
The 2026 IRS Uniform Lifetime Table for traditional IRA owners and qualified plan participants who are not married to a sole-beneficiary spouse more than 10 years younger uses the same factors as 2022 - the table did not change with SECURE 2.0. Age 73: 26.5. Age 75: 24.6. Age 80: 20.2. Age 85: 16.0. Age 90: 12.2.
An excess contribution is any amount in excess of the annual IRA limit or beyond what can be contributed given the taxpayer's compensation or age. The penalty is 6% of the excess for each year it remains in the account as of December 31 - no SECURE 2.0 reduction was made to this rate.
| Common Excess Contribution Triggers | How It Happens |
|---|---|
| Exceeded annual limit | Contributed $8,000 to an IRA at age 49 ($7,000 limit applies) |
| Roth contribution over MAGI limit | Direct Roth contribution when income exceeds phase-out |
| Spousal contribution without compensation | One spouse with no earned income contributed without using spousal rules |
| RMD rolled to IRA | RMD distributions are ineligible for rollover under IRC §402(c)(4)(B) |
| 60-day rollover violations | Indirect rollover not completed within 60 days |
The 6% penalty does not apply if the excess is removed - along with attributable earnings - by the tax filing deadline (October 15 if extended) of the year the contribution was made. This is the "return of excess contribution" procedure under IRC §408(d)(4). The earnings are taxable in the year of contribution; the principal is not.
| Correction Method | Result |
|---|---|
| Withdraw excess plus earnings by Oct 15 of following year | No 6% penalty; earnings taxable in contribution year |
| Recharacterize between traditional and Roth (regular contributions only) | No penalty; treated as if originally made to the other type |
| Absorb in next year's limit (carry forward) | 6% penalty applies for each year not corrected |
| Leave the excess in indefinitely | 6% applies each Dec 31 the excess remains; cumulative |
Distributions from a qualified plan, IRA, or annuity before age 59 1/2 are subject to a 10% additional tax under IRC §72(t)(1) unless an exception applies. The tax is on top of regular income tax, not in lieu of it.
| Exception | Authority | Notes |
|---|---|---|
| Death of account owner | §72(t)(2)(A)(ii) | Applies to beneficiary distributions |
| Disability | §72(t)(2)(A)(iii) | Must meet §72(m)(7) definition |
| Substantially equal periodic payments (SEPP) | §72(t)(2)(A)(iv) | Must continue at least 5 years AND past age 59 1/2 |
| Age 55 separation (employer plan only, NOT IRA) | §72(t)(2)(A)(v) | Must separate from service in or after year of 55 |
| Qualified domestic relations order (QDRO) | §72(t)(2)(C) | Employer plan only |
| Medical expenses exceeding 7.5% AGI | §72(t)(2)(B) | Available for both IRAs and qualified plans |
| Health insurance premiums during unemployment | §72(t)(2)(D) | IRA only; 12+ weeks unemployment required |
| First-time home purchase | §72(t)(2)(F) | IRA only; $10,000 lifetime limit |
| Qualified higher education expenses | §72(t)(2)(E) | IRA only |
| Birth or adoption (up to $5,000) | §72(t)(2)(H) | SECURE Act 1.0, both IRAs and plans |
| Federally declared disaster ($22,000) | §72(t)(2)(M) | SECURE 2.0 §331 |
| Terminal illness | §72(t)(2)(L) | SECURE 2.0 §326 |
| Domestic abuse (up to $10,000 or 50% of vested balance) | §72(t)(2)(K) | SECURE 2.0 §314, effective 2024 |
| Personal emergency ($1,000/year) | §72(t)(2)(I) | SECURE 2.0 §115, effective 2024 |
| Long-term care insurance premiums | §72(t)(2)(N) | SECURE 2.0 §334, effective 2026 |
The SEPP exception (sometimes called "72(t) payments") allows early retirement before 59 1/2 by establishing a series of substantially equal periodic payments based on life expectancy. The payments must continue for the longer of five years or until the participant reaches 59 1/2. Modifying the payment schedule before the longer period elapses triggers retroactive penalty plus interest on all prior SEPP distributions under §72(t)(4).
Three permissible computation methods exist under Rev. Rul. 2002-62 and Notice 2022-6: (1) required minimum distribution method, (2) fixed amortization method, and (3) fixed annuitization method. Notice 2022-6 allows a floor interest rate of 5% (or 120% of the federal mid-term rate if higher), making the SEPP exception more useful in low-rate environments.
| Scenario | Form 5329 Action |
|---|---|
| Missed RMD, want full waiver | File Form 5329 Part IX. Enter shortfall on line 53, enter $0 on line 55 with "RC" notation. Attach reasonable-cause explanation. |
| Missed RMD, accept 10% rate | File Form 5329 Part IX. Compute 10% on amount corrected within window. Lines 52a-52b properly allocate corrected vs uncorrected portions. |
| Missed RMD, prior year | File standalone Form 5329 for that year (no Form 1040-X needed if no other return change). Use that year's version of the form. |
| Early distribution, exception applies | File Form 5329 Part I. Enter distribution on line 1, exception amount on line 2 with exception code. Net taxable on line 3. |
| Early distribution, no exception | File Form 5329 Part I. Compute 10% tax on line 4, flows to Schedule 2 line 8. |
| Excess IRA contribution, correcting | No Form 5329 needed if excess plus earnings removed by Oct 15. Earnings go on Form 1040 as taxable income. |
| Excess IRA contribution, not correcting | File Form 5329 Part III (traditional) or Part IV (Roth). Compute 6% on lesser of excess or year-end IRA value. |
If the decedent had an RMD due in the year of death that they did not take, the beneficiary must take it. New guidance under SECURE 2.0 confirms that the missed year-of-death RMD must be taken by December 31 of the year following the decedent's death to avoid the §4974 excise tax. Different rules apply to subsequent-year beneficiary RMDs under the 10-year rule (post-SECURE Act 1.0).
Traditional IRA RMDs can be aggregated. A taxpayer with three traditional IRAs can compute the total RMD and take it entirely from one IRA. 403(b) RMDs can also be aggregated across 403(b) accounts. But 401(k) RMDs cannot be aggregated across multiple plans - each plan stands alone. Inherited IRAs cannot be aggregated with the beneficiary's own IRAs.
SECURE 2.0 §325 eliminated RMDs from Roth designated accounts (Roth 401(k), Roth 403(b)) for tax years 2024 and forward. Roth IRAs were already exempt during the owner's lifetime. This change brought Roth 401(k)s into alignment with Roth IRAs. Roth balances now require no RMD for the original account owner.
Qualified Charitable Distributions (QCDs) under IRC §408(d)(8) satisfy RMD requirements dollar-for-dollar. The 2026 QCD limit is $115,000 per individual, indexed annually under SECURE 2.0 §307. A QCD-only RMD strategy is legitimate for charitable Clients but the distribution check must go directly from the custodian to the charity - taking the cash and then writing a personal check disqualifies the QCD treatment.
1099-R distribution codes drive automatic IRS matching. Code 1 (early distribution, no exception) generates penalty assessment. Code 2 (early distribution, exception applies) does not. Code 7 (normal distribution after 59 1/2) and code G (rollover) don't trigger penalties either. When the code is wrong, file Form 5329 explicitly claiming the exception even if the 1099-R coding should have suppressed the issue.
Primary authority: IRC §72(t) (10% additional tax on early distributions and exceptions), §4973 (excess contribution tax), §4974 (missed RMD excise tax), §408(d)(4) (return of excess contribution), §408(d)(8) (QCD treatment), §401(a)(9) (RMD requirements). SECURE Act 1.0 §114 (RMD age 72). SECURE 2.0 Act of 2022, P.L. 117-328: §107 (RMD age increases), §302 (RMD penalty reduction), §307 (QCD indexation), §313 (six-year SOL), §314 (domestic abuse), §325 (Roth 401(k) RMD elimination), §326 (terminal illness), §331 (federally declared disaster), §334 (long-term care premiums), §115 (personal emergency). Rev. Rul. 2002-62 and Notice 2022-6 (SEPP methods). Couturier v. Commissioner, 162 T.C. 4 (2024). IRS Form 5329 Instructions (2025), IRS Publication 590-B.