Form 8606 or 5329?

Question

In 2006, I took a Qualified early distribution from my Roth IRA for the 1st time homebuyer. I meet all the requirements to be qualified including only withdrawing 10,000.
I'm using TurboTax, and it wants to complete form 8606, but the IRS helpdesk folks say I need to use 5329....but TurboTax won't let me use that form.

Any thoughts?

Answer 1

You need to complete part 3 of the 8606 to remove it from both taxable income and penalties. The 5329 is not needed, because there is no taxable amount subject to penalties.


Publication 590 chapter 2
http://www.irs.gov/publications/p590/index.html

Answer 2

Actually, you may need BOTH, depending upon ALL of the facts. Keep going with Turbo Tax and it will very likely select Form 5329 later in the preparation process. If Turbo Tax decides that Form 8606 isn't needed, it won't be filed.

Each of the commercial tax prep software packages has their quirks and this is especially obvious if you know the law and how to do things manually. Tax Cut will drive you nuts the first time you file a return that includes income from rental property. Questions are asked out of sequence in what I would call the "wrong" part of the interview process. It works out right in the end, though. Once you've completed the return and are ready to file, go back to the forms and have a look.

It's also possible that Turbo Tax needs to be updated. Tax Cut prompts you to check for updates every time you run the program; I haven't used Turbo Tax in years so I don't know how they handle updates. But I'd look for and run the manual update process just to be sure that it's up to date. Most of the commercial packages were stamped back in November and December and all of the laws and implementing regulations had not been finalized when they were produced.

Answer 3

You for sure need to fill out 8606...Depending on the data in that form, you MAY have to fill out a 5329. Just follow TurboTax's instructions and you'll get to 5329 if necessary.

From instructions for Form 5329:

You must file Form 5329 if any of the following apply, except you do not have to file Form 5329 to report a qualified hurricane distribution.

• You received an early distribution from a Roth IRA, the amount on form 8606, line 23, is more than zero, and you are required to enter an amount that is more than 0 on Form 5329, line 1 (see exception for Roth IRA distributions that begins on Page 2.

Source: http://www.irs.gov/pub/irs-pdf/i5329.pdf

Answer 4

Form 5329-t