​ESA Account

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. 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.

ABLE Account

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. 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 and 5498-QA.

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

10% penalty

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 and select Force 5329 at the bottom right of the screen.

1099-R, SEP, code S, Penalty

If you enter Form 1099-R with SEP and a distribution code of S and are expecting a 25% penalty to calculate, an additional entry is required. 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%.

Required Minimum Distribution

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 2023" and "Amount actually distributed to taxpayer in 2023" 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.

Early Distribution Exception

Enter total distributions included in gross income as an override on line 1 of screen 5329, or direct distributions to flow there from the 1099 screens 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 Form 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)

  • See the IRS Retirement Topics - QDRO and Publication 575 for more information

• 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."

e-file

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.