Do you only file Form 5329 if you qualify for an exception to the early distribution penalty?

I had the same problem but with TurboTax. Would manually downloading Form 5329 and filling it out work? Or does it have to be done through tax software?

You can absolutely download Form 5329 directly from the IRS website and fill it out manually. You'll need to mail it in with your return if you're otherwise e-filing and the software won't generate it. If you're filing a paper return anyway, you can just include the completed Form 5329 with your other forms. Just make sure you transfer the additional tax amount to the appropriate line on your Form 1040.

Does taxr.ai work with retirement account distributions that cross state lines? I moved from California to Texas mid-year and took an early distribution. Super confused about how to handle the state tax part of it.

I'm skeptical about these tax helper sites. Do they actually file your taxes or just give advice? And how do they handle security with all your financial info?

Yes, taxr.ai handles multi-state tax situations really well. When you upload your distribution documents, it recognizes the state tax withholding information and guides you through how each state will treat the early withdrawal. It was actually really helpful when I moved from New York to Florida last year. They don't file your taxes for you - they analyze your documents and tell you what forms you need and what you might be missing. It's like having a tax pro review your stuff before you file. As for security, they use bank-level encryption and delete your docs after analysis if you want. I was nervous about that too but they explain their security setup pretty clearly on their site.

Wait, how does this actually work? The IRS phone system is notoriously impossible. Are you saying this service somehow gets you to the front of the line?

Yeah right. Nothing gets you through to the IRS faster. This sounds like a scam that takes your money and does absolutely nothing. IRS doesn't allow line-cutting services.

It's not about cutting the line - Claimyr uses a system that navigates the IRS phone tree and waits on hold for you. When they finally reach a human, you get a call connecting you directly to that agent. The service basically does the holding part for you. The IRS absolutely allows this because you're still going through their regular phone system - there's no special access or line cutting. It's just automating the most painful part of the process. When I used it, I got a callback with an IRS agent on the line within 25 minutes when I had previously waited over 2 hours and got disconnected.

Did FreeTaxUSA help you identify any potential exceptions to the 10% penalty? Or did you have to figure that out yourself?

FreeTaxUSA actually walks you through all the possible exceptions during the interview process. It asks specific questions about how you used the money (education, first home purchase, medical expenses, etc.) and then determines if any exceptions apply. It also explains each exception with examples so you can better understand if your situation qualifies. I found it much more user-friendly than trying to interpret the IRS language on my own.

That's a really important point! Last year I had both an early distribution AND I over-contributed to my Roth IRA. Had to fill out different parts of the same form.