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13788: 5329 - Frequently Asked Questions

1040 Individual

5329 - Frequently Asked Questions 


Where can I enter information about Coverdell ESA account or an ABLE account in Drake Tax?

Coverdell Education Savings Account (ESA):-

A Coverdell Education Savings Account (ESA) is a trust or custodial account created or organized only for the purpose of paying the qualified education expenses of the Designated beneficiary. Coverdell ESA information may be entered on screen 5329, located on the Adjustments tab. Information entered on Part II - Education and Able Accounts is used to calculate taxable distributions from the Coverdell ESA account. Coverdell ESA contribution information may be entered on Part V - Coverdell ESA

See Publication 970 for more information about Coverdell ESAs. 

Achieving a Better Life Experience (ABLE):

ABLE (Achieving a Better Life Experience) accounts are designed to assist those with disabilities and to help their families save for and pay disability-related expenses. ABLE account information may be entered for a 1040 return, on the 5329 screen, located on the Adjustments tab of data entry. Distribution information may be entered on Part II - Education and Able Accounts to calculate taxable distributions from the ABLE account. Additional fields are located in the bottom right of the screen under Part VIII – ABLE Account for contributions and the total value of the ABLE account.

ABLE account information is reported on Forms 1099-QA (Distributions from ABLE Accounts) and 5498-QA (ABLE Account Contribution Information). 

For more information on ABLE accounts, see the Instructions for Forms 1099-QA and 5498-QA.

Note: You must fill out part VIII, lines 50 and 51 on the 5329 screen for the additional tax to be calculated on Form 1040.

I entered a 1099-R that should require a 10% penalty to show on Form 1040, but no amount is there. How do I get it to calculate? 

Open the 1099 screen for the 1099-R involved. In the Additional Information for this Distribution section, select Carry this entry to Form 5329 and compute 10% penalty. Click the Form 5329 link to open the 5329 screen and make any necessary entries.

The taxable amount from the 1099-R line 2 will carry to the appropriate line of Form 5329 (if required), then Form 1040.

If the 5329 is not required, it is noted on the return.

To view the form when it is not required, open the 5329 screen (the Adjustments tab) and select Force 5329 at the bottom right of the screen.

If any exception apply, or if only a portion of the taxable amount qualifies for an exception to the Form 5329 penalty calculation, do not check this box, instead, manually complete the 5329 screen on the Adjustments tab.

I have entered a 1099R with SEP and a distribution code of S. Isn't the software supposed to calculate a 25% penalty on Form 1040?

There is not an automatic calculation by the software to produce this result. You will have to go to the 5329 screen and key the early distribution on line 1 Early distributions included in gross income, and line 4 Amount on line 1 that is taxed at 25%.

Where do I enter the required minimum distribution (RMD) for Part IX of Form 5329 to calculate the additional tax or waiver?

The minimum required distribution amount and actual distribution amount can be entered on the 5329 screen, part IX in lines 52 and 53. These entries will be used to figure the additional tax on excess accumulation in qualified retirement plans, unless the taxpayer qualifies for a waiver of the tax.  The tax waiver amount can be entered on screen 5329, line 54. The IRS can waive part or all of this tax if the taxpayer can show that any shortfall in the amount of distributions was due to reasonable error and he or she is taking appropriate steps to remedy the shortfall. If the taxpayer believes he or she qualifies for this relief, attach a statement of explanation and file Form 5329 as follows:

  1. Enter "Minimum required distribution for 20XX" and "Amount actually distributed to taxpayer in 20XX" as instructed.
  2. Enter the amount the taxpayer wants waived in this field.
  3. To create the statement, go to the SCH screen. Use statement number "646".

How do I show an early distribution exception on screen 5329?

Enter total distributions included in gross income as an override on line 1 of screen 5329, or direct distributions to flow there from 1099 screen(s) by checking the box Carry this entry to Form 5329 and compute 10% penalty.

On screen 5329, line 2, select the Exception number and enter the applicable a Early distributions not subject to additional tax. There are several exception codes for Early Distributions available in Drake Tax. See the 5329 instructions, page 4 for information regarding the line 2 exception codes and their application:

  • 01 Distribution due to separation from service in or after the year of reaching 55 (does not apply to IRAs)
  • 02 Distribution made as part of a series of substantially equal periodic payments
  • 03 Distributions due to total and permanent disability
  • 04 Distributions due to death (does not apply to modified endowment contracts)
  • 05 Distribution to the extent of deductible medical exp claimed on Sch A, line 4
  • 06 Distribution made to alternate payee under a qualified domestic relations order (QDRO)
  • 07 Distributions made to unemployed individuals for health insurance premiums
  • 08 Distributions made for higher education expenses
  • 09 Distributions made for first-home purchase up to $10,000
  • 10 Distributions due to an IRS levy
  • 11 Qualified distributions to reservists while serving on active duty for at least 180 days
  • 12 Other (see instructions). Also use exception code 12 (other) to indicate that it was a "Coronavirus-related distribution."

The CARES Act, section 2202, allows the 10% early distribution penalty to be waived, up to $100K, for qualifying distributions made due to COVID-19.  The distribution must have been made from an eligible retirement plan on or after January 1, 2020, and before December 31, 2020 and be for one of the qualifying reasons: 

  • Diagnosis
  • Family diagnosis
  • Financial loss from quarantine
  • Miscellaneous provisions

Is Form 5329 e-fileable?

Form 5329 may be e-filed with the return. 

If you are not required to file a return, but still need to file Form 5329, check the box Print Taxpayer and Preparer Information to mail separately from the return at the bottom right of the 5329 screen. This will print the taxpayer's address and the paid preparer's information for mailing Form 5329 separately from the main return. Important: remove the ERO's PIN signature from the PIN screen to clear the printed preparer's name from the signature line if using this option. Also, review the 5329 File Instruction in view for more information.

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