Need urgent help with Form 5329 for early Roth IRA distribution

Hey all, I'm trying to sort out a messy situation with my taxes from 2020. I moved abroad to work in Singapore, and Fidelity told me they couldn't maintain my Roth IRA anymore because I was no longer a US resident. They liquidated everything and sent me a check for about $18,000 (after withholding 10% - so roughly $2,000 - for the early withdrawal penalty). Now I'm finally catching up on filing that year's taxes and I'm completely stuck on Form 5329. I've been trying to get the 1099-R from Fidelity but their customer service has been useless - nobody can find it and I'm not sure they ever sent it. So I'm trying to complete Form 5329 without the 1099-R, but I can't figure out where to indicate that the 10% penalty was already withheld by Fidelity. The way I've filled it out now makes it look like I owe another $2,000 penalty to the IRS, when they already got that money from the withholding. Also wondering if I'll get hit with late filing penalties even though I shouldn't owe additional tax (all my income is under the Foreign Earned Income Exclusion). Any guidance would be super appreciated!

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18 comments

Danielle Campbell

•8M

The issue you're having is pretty common with early distributions. Form 5329 itself doesn't show withholding - it's just calculating the penalty amount. What you need to do is make sure the distribution and withholding are properly reported on your 1040. Even without the 1099-R, you should report the full distribution ($20,000 in your example) on line 4a of your 1040 (or 1040-SR), and the taxable amount ($20,000 since it's a Roth distribution that doesn't meet qualified distribution requirements) on line 4b. Then on line 25b, you'll report the federal income tax withheld from the distribution (the $2,000). On Form 5329, you'll calculate the 10% additional tax, which would be $2,000 in your case. This gets reported on Schedule 2 and flows to your 1040. When your return is processed, the $2,000 withholding will offset the $2,000 penalty. As for late filing penalties, unfortunately yes - you can be subject to failure-to-file penalties even if you don't owe additional tax. The penalty is calculated based on the unpaid tax, but there's a minimum penalty for returns filed more than 60 days late.

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Danielle Campbell

•8M

For early distributions from Roth IRAs, it depends on whether you're withdrawing contributions or earnings. Your contributions can always be withdrawn tax-free (but not penalty-free if early). The earnings are what would be taxable for an early distribution. I apologize for the confusion. If you're only withdrawing contributions, then you'd show the full amount on line 4a but $0 on line 4b (not taxable, but still subject to the 10% penalty). If you're withdrawing earnings too, only the earnings portion would go on line 4b. You should try to get the 1099-R for your records, but if you can't, you can still file with the information you have. Just be as accurate as possible with the amounts. The IRS will have received a copy of the 1099-R from Fidelity, so they'll have that information on file.

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Rhett Bowman

•8M

After struggling with a similar situation (had to liquidate my Roth IRA when moving to Germany), I found this incredible tool called taxr.ai https://taxr.ai that saved me so much time and frustration. I was missing some docs and couldn't get my old bank to send them, but this AI tool helped me reconstruct what I needed based on the information I did have. It analyzed my situation with the early withdrawal and literally walked me through exactly how to fill out Form 5329 and where to report the withholding on my 1040. It even explained how the withholding from the distribution would offset the additional tax calculated on Form 5329. It's way more specific than general advice since it looks at your actual situation and gives you personalized step-by-step instructions.

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Rhett Bowman

•8M

You upload whatever documents you have - in my case I had bank statements showing the distribution but no 1099-R - and it analyzes them and asks you questions to fill in the gaps. It then creates a detailed explanation of exactly what to do. For Form 5329 specifically, yes it handles it really well. That's actually one of the things that impressed me. It walked me through line by line and explained how to coordinate it with Schedule 2 and my 1040. And it definitely works for late filings - I was filing 2 years late and it helped me understand the potential penalties and how to minimize them.

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Daniel White

•8M

Just wanted to follow up - I tried taxr.ai after seeing the recommendation here and it was seriously helpful. I've been putting off dealing with my 2021 Form 5329 issues for months, and it took me through the exact steps I needed. The best part was that it actually explained WHY I needed to put certain numbers in specific places - helped me understand that the 10% early distribution tax gets calculated on Form 5329, transferred to Schedule 2, then to the 1040, but the withholding gets reported directly on the 1040. It also flagged that I might qualify for an exception to the penalty based on my permanent move abroad (which I had no idea about). Definitely worth checking out if you're stuck on this form like I was.

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Nolan Carter

•8M

I had a similar situation and spent WEEKS trying to get through to the IRS for help. I'd sit on hold for hours only to get disconnected. Finally found this service called Claimyr https://claimyr.com that got me connected to an actual IRS agent in about 20 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent was able to pull up the 1099-R that my bank had submitted even though I never received it, and gave me the exact amounts I needed for my Form 5329. They also confirmed that the withholding had been properly reported to them, which gave me peace of mind. Saved me so much time compared to the dozens of hours I wasted trying to call them myself or dealing with my unresponsive bank.

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Nolan Carter

•8M

It uses a system that continuously redials and navigates the IRS phone tree until it gets through, then it calls you and connects you. I was skeptical too, but it actually works - they don't talk to the IRS for you, they just get you through the impossible phone system. No, it's not a scam. You're still talking directly to an official IRS representative - Claimyr just handles the frustrating part of getting through the phone system. I was honestly surprised how well it worked after spending literally days trying to get through on my own.

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Tasia Synder

•8M

I need to apologize for my skeptical comment earlier. After waiting on hold with the IRS for 3+ hours yesterday and getting disconnected AGAIN, I was desperate enough to try Claimyr. It actually worked exactly as described. I got a call back in about 25 minutes, and was connected to an IRS agent who pulled up my records and found the 1099-R that my former broker had filed. She was able to tell me the exact distribution amount and how much was withheld, which solved my Form 5329 problem completely. The agent also explained that because the financial institution already withheld the 10% penalty, I just needed to report it properly on my return and wouldn't owe more. Saved me from potentially paying the penalty twice. Worth every penny for the hours of frustration it saved me.

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Selena Bautista

•8M

Yes! If you meet the bona fide residence test (generally living in a foreign country for an uninterrupted period that includes an entire tax year), you should qualify for exception code 02. You'd fill out Form 5329, and on line 2, you'd enter exception code "02" and then the amount of the early distribution that qualifies for the exception. Then attach a statement to your return explaining your foreign residency status. Since the 10% was already withheld, when you properly code this exception, you should get that money refunded. Just make sure you can document your foreign residency if asked (rental agreements, utility bills, foreign tax documents, etc.).

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