21.6.5. Individual Retirement Arrangements (IRA), Coverdell Education Savings Accounts (ESA), Archer Medical Savings Accounts (MSA) and Health Savings Accounts (HSA)

(1) A taxpayer must coordinate contribution limits for traditional IRAs and Roth IRAs. The maximum total yearly contribution that an individual can make to all individual IRAs is the lesser of the individual’s taxable compensation for the year (this does not include rollovers), or the following amounts:

(2) The law allows taxpayers to contribute to a Roth IRA after age 70¹⁄₂.

(3) An excess contribution is an amount contributed to the taxpayer's Individual Retirement Arrangement (IRA) in excess of the amount of compensation for the tax year, or the IRA contribution limit that applies to the taxpayer for that year. Refer to IRM 21.6.5.4.3, Excess Contributions Tax, IRM 21.6.5.4.6.1, Contribution Limits, and IRM 21.6.5.3.1, Traditional Individual Retirement Arrangement (IRA), for information about contribution limits. Excess contributions are subject to 6% tax under IRC 4973.

(1) The maximum yearly contribution that a taxpayer can make to a Roth IRA is phased out based on modified adjusted gross income (MAGI) and filing status as follows:

(1) Qualified distributions from a Roth IRA are not includible in gross income and are not subject to 10% tax on early withdrawals.

(2) A qualified distribution is any payment or distribution from a Roth IRA that is made at least five years from the beginning of the year in which the taxpayer first set up and contributed to a Roth IRA, and the distribution is:

• Made on or after the taxpayer reaches age 59¹⁄₂

• Made upon death or disability, or

• Made for a first-time home purchase (up to a $10,000 lifetime limit).

(3) Refer to Pub 590-B, Distributions from Individual Retirement Arrangements (IRAs), for more information on qualified distributions.

(1) The five-year holding period is satisfied if Roth distributions (including distributions allocable to conversion contributions) are not made before the end of the five-tax year period beginning with the first tax year that the taxpayer contributed to a Roth IRA.

(2) As with other IRAs, a taxpayer can make a regular contribution for a year if it’s made by the due date for filing a tax return for the year, without regard to extensions. In this case, the five-tax-year holding period begins with the tax year for which a contribution is first made to a Roth IRA. A subsequent contribution does not start a new five-year period.

(1) Nonqualified distributions may be includible in gross income. Contributions are withdrawn tax-free. Earnings are included in gross income and may be subject to 10% tax on early withdrawals. Refer to Pub 590-B, Distributions from Individual Retirement Arrangements (IRAs), for more information on nonqualified distributions from a Roth IRA.

(2) Distribution of a Roth conversion amount within five years of the conversion may cause the 10% additional tax on early distributions to be imposed, even if the amount distributed is not includible in gross income. Refer to Pub 590-A, Contributions to Individual Retirement Arrangements (IRAs), and Pub 590-B for more information.

(3) When evaluating nonqualified distributions from a Roth IRA:

1. Treat distributions as made from regular contributions first and then conversion contributions on a first in first out (FIFO) basis.

2. Treat all of an individual’s Roth IRAs as a single Roth IRA.

3. Do not treat any of a distribution as earnings until the total of all distributions from all the taxpayer’s Roth IRAs exceed the amount of contributions to all the taxpayer’s Roth IRAs.

(1) The minimum distribution rules applying to other IRAs generally do not apply to Roth IRAs while the owner is alive.

(2) However, after the death of a Roth IRA owner, certain minimum distribution rules that apply to traditional IRAs also apply to Roth IRAs. Refer to Pub 590-B, Distributions from Individual Retirement Arrangements (IRAs), for more information.

(1) When transferring assets from a qualified plan, traditional IRA or Roth IRA:

1. A taxpayer may rollover, tax-free, distributions from a Roth IRA and eligible rollover distributions from a designated Roth account in a qualified plan to Roth IRA.

2. A taxpayer can convert amounts in a traditional IRA into a Roth IRA.

3. A taxpayer must include amounts converted from a traditional IRA or rolled over from a qualified plan (other than from a designated Roth account in the plan) to a Roth IRA in gross income as if they were distributed from the traditional IRA or qualified plan, except the 10% tax does not apply. Refer to Pub 590-A, Contributions to Individual Retirement Arrangements (IRAs), for more information.

(2) For tax years beginning before January 1, 2018, taxpayers can reverse (“recharacterize”) a conversion of a traditional IRA to a Roth IRA. The taxpayer may recharacterize the conversion contribution by the due date (including extensions) of the tax return for the tax year during which they made the contribution. Refer to Pub 590-A for more information.

(3) Effective for taxable years beginning after December 31, 2017, a conversion of a traditional IRA to a Roth IRA, and a rollover from any other eligible retirement plan to a Roth IRA, cannot be recharacterized.

(1) Before a beneficiary reaches age 30, the balance in a Coverdell Education Savings Account may be transferred or rolled over into another Coverdell Education Savings Account for the beneficiary or a member of the former beneficiary’s family (including the beneficiary's spouse) who is under age 30. This age limitation does not apply if the new beneficiary is a special needs beneficiary. Refer to Pub 970, Tax Benefits for Education, for more information.

(2) Transfers upon death or divorce to a spouse/member of the beneficiary’s family under age 30 are generally not taxable and the spouse or family member treats the account as their own.

(1) Certain colleges and universities may sponsor prepaid tuition programs under IRC 529. States may sponsor both prepaid and savings programs. Refer to Pub 970, Tax Benefits for Education, for more information.

(2) IRC 529 requires that a qualified tuition program sponsored by an eligible educational institution (defined in IRC 481 of the Higher Education Act of 1965: 20 USC 1088) must hold amounts in a qualified trust and have received a ruling or determination from the IRS that the qualified tuition program meets the applicable requirements.

(3) A taxpayer may contribute to both a Coverdell Education Savings Account and to a IRC 529 Program in the same year. Refer to Pub 970 for more information about QTP.

(4) Qualified higher educational expenses include expenses for tuition in connection with enrollment or attendance at an elementary or secondary public, private, or religious institution. In the case of a IRC 529 program, qualified higher education expenses also include expenses for fees, books, supplies, and equipment required for participation in an apprenticeship program registered and certified with the Secretary of Labor; and, up to $10,000 paid as principal or interest on qualified student loans. Refer to IRC 530(b)(2)(A)(i) and IRC 529(e)(3) that further define qualified higher educational expenses which can be paid with funds from a Coverdell Education Savings Account or a IRC 529 program.

(5) A portion of the earnings included in a distribution that exceeds the amount of qualified education expenses in excess of the distribution, is included in gross income and is subject to a 10% additional tax, unless an exception applies. This additional tax is reported on Part II, Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts.

(6) Beginning in 2004, a distribution from a QTP established and maintained by an eligible educational institution (generally private colleges and universities) can be excluded from income if the amount distributed is not more than qualified educational expenses. For more information on tax-free QTP distributions, refer to Chapter 8 in Pub 970.

(7) The Military Family Tax Relief Act of 2003 exempts the additional 10% tax for withdrawals from IRC 529 QTP accounts for non-educational use, because of attendance at United States service academies (i.e., U.S. Military Academy, U.S. Naval Academy, U.S. Air Force Academy, U.S. Coast Guard Academy, or the U.S. Merchant Marine Academy).

(8) Taxpayers may roll over distributions received after December 22, 2017 and rolled-over before January 1, 2026, to an ABLE account, without penalty or income tax, within 60 days of distribution. The designated beneficiary of the ABLE account must be the same as the designated beneficiary of the QTP, or a family member of the designated beneficiary of the QTP. The amount of any rollover is limited to the amount that, when added to all other contributions to the ABLE account, does not exceed the IRC 529A(b)(2)(B)(i) limit for the year, i.e., the annual gift tax exclusion amount under IRC 2503(b). If the amount of the rollover causes contributions to exceed the limit, the distributee must include the excess rollover amount in their gross income.

(9) Division T of the Consolidated Appropriations Act, 2023, , known as the SECURE 2.0 Act of 2022, amended IRC 529 as of December 31, 2023, to provide for a special rollover that is treated as a tax-free distribution (in the form of a trustee-to-trustee transfer) for certain amounts from a designated beneficiary’s QTP to their Roth IRA. The QTP must have been maintained for at least 15 years as of the date of such distribution and the distribution does not exceed the aggregate amount contributed to the QTP (and attributable earnings) before the 5-year period ending on the date of the distribution. The amount of any special rollover is limited to the IRC 408A(c)(2) Roth IRA contribution limit and an aggregate limit of $35,000.

(1) The Balanced Budget Act of 1997 allows eligible individuals to establish a Medicare Advantage Medical Savings Account (MSA), IRC 138. The federal Medicare program administers MSAs. Refer to Pub 969, Health Savings Accounts and Other Tax-Favored Health Plans, for more information on Medicare Advantage MSAs.

(2) Medicare Advantage MSA distributions are reported on Form 8853, Archer MSAs and Long-Term Care Insurance Contracts, Section B, Medicare Advantage MSA Distributions.

(3) To qualify for a Medicare Advantage MSA, individuals must:

• Enroll in Medicare, and

• Have a high deductible health plan that meets Medicare guidelines.

(4) Only Medicare makes contributions to a Medicare Advantage MSA. These contributions and the earnings are not taxable while in the account.

(5) If an account holder uses distributions for expenses other than qualified medical expenses, the distributions are taxable, and may be subject to an additional 50% tax. Taxpayers must file Form 8853 with their tax return if they have a Medicare Advantage MSA. Refer to Pub 969 for more information.

(1) A taxpayer must file Form 8853, Archer MSAs and Long-Term Care Insurance Contracts, if during the tax year, they or their spouse (if filing joint):

1. Made a contribution to an existing Archer MSA as an employee or employer.

2. Received distributions from an existing Archer MSA or Medicare Advantage MSA.

3. Acquired an interest in an Archer MSA or Medicare Advantage MSA due to the death of the account holder.

4. Received distributions from a long-term care insurance contract.

5. Received certain accelerated death benefits from a life insurance contract.

(2) Taxpayers use Section B, Medicare Advantage MSA Distributions, to report Medicare Advantage MSA Distributions, figure taxable distributions and additional tax.

(3) Taxpayers use Section C, Long-Term Care (LTC) Insurance Contracts, to report Long-Term Care Insurance contracts.

(1) Within limits, contributions to an Archer MSA are:

• Deductible if made by eligible individuals

• Excludable if made by the employer

Exception: The exclusion does not apply to contributions made through a cafeteria plan.

(2) The taxpayer or spouse may not contribute to an Archer MSA if the employer made any contributions (Form W-2, Wage and Tax Statement, Box 12 with Code R).

(3) The deduction is limited to:

• 65% of the annual deductible (self-only coverage)

• 75% of the annual deductible (family coverage)

(4) Taxpayers can make contributions for a particular tax year until the due date (without regard to extensions) of the individual income tax return for that year.

(5) The Archer MSA deduction is the smallest of:

• The amount of contributions for the year.

• The amount of compensation from the employer sponsoring the high deductible health plan.

• The net earnings from self-employment (if applicable), or

• The MSA limitation.

(1) The taxpayer is taxed on all distributions received in the tax year from all Archer MSAs to the extent the distributions were not used for qualified medical expenses of the account holder, his spouse, or dependents.

(2) Distributions not for medical expenses are also subject to an additional 20% tax unless made:

• After age 65 (account holder)

• After death (account holder)

• After disability (account holder)

(3) The taxpayer may rollover a distribution (withdrawal) of assets from one Archer MSA into another Archer MSA or health savings account (HSA). Generally, a taxpayer must rollover the distribution within 60 days following the distribution for the distribution to qualify as tax-free.

(4) Form 8853, Section A, Part II, is used for computing any taxable distributions and the additional tax.

(1) Taxpayers report Medicare Advantage Medical Savings Account (MSA) distributions on Form 8853, Section B.

(2) The taxpayer does not make contributions to a Medicare Advantage MSA account. Part B of title XVIII of the Social Security Act governs contributions (Medicare makes contributions to the account).

(3) The taxpayer is taxed on distributions received in the tax year to the extent the distributions were not used for unreimbursed qualified medical expenses.

(4) Distributions not for unreimbursed qualified medical expenses are also subject to an additional 50% tax to the extent they reduce the prior year account balance below an established floor unless made after the account holder:

• becomes disabled, or

• is deceased

Row Number	If	And	Then
1	The account holder dies	The designated beneficiary is the account holder’s surviving spouse	Treat as a regular MSA of the spouse.
2	The account holder dies	There are any distributions after the date of death	Report in Section B.
3	There are any qualified medical expenses incurred by the account holder before date of death	Paid by the surviving spouse within one year after the date of death	Include on Line 7 of Section A, Part II.
4	The account holder dies	The designated beneficiary is not the account holder’s surviving spouse	Include the fair market value of the account in the beneficiary’s gross income. The account is no longer an MSA as of the date of death.
5	There are any qualified medical expenses incurred by the account holder before date of death	Paid by the beneficiary within one year after the date of death	Report in Section B. The distribution is not taxable to the extent of the qualified medical expenses.

(5) The law permits Trustee-to-Trustee transfers of Medicare Advantage MSA accounts.

(6) Taxpayers must file a separate Form 8853, with Section B completed, for each spouse if both spouses received distributions from a Medicare Advantage MSA.

(1) The taxpayer must complete Form 8853, Section C, if the taxpayer (policyholder) or spouse (if filing jointly) was a policyholder who received payments made on a per diem or other periodic basis under a qualified LTC insurance contract or received certain accelerated death benefits on a per diem or other periodic basis.

(2) The taxpayer must file a separate Form 8853, Section C, for each insured person for whom the taxpayer received payments.

(3) Taxpayers report any taxable benefits on Form 8853, Section C, Line 26 and on Form 1040, U.S. Individual Tax Return, Form 1040-SR, U.S. Tax Return for Seniors, or Form 1040-NR, U.S. Nonresident Alien Income Tax Return. Beginning tax year 2020 and subsequent years, taxpayers report taxable benefits on Line 8 of Schedule 1, Additional Income and Adjustments to Income, and attach to Form 1040, Form 1040-SR or Form 1040-NR.

(4) The individual owning the proceeds of the qualified LTC contract must report the income for tax purposes, regardless of whether the payment is assigned to a third party.

(5) Taxpayers exclude from income amounts paid as reimbursements for qualified LTC services under a qualified LTC contract.

1. The excludable amount is limited if payments are made on a per diem basis or other periodic basis.

2. Taxpayers must allocate the per diem exclusion limit among all policyholders who own qualified LTC insured contracts for the same insured.

(6) Taxpayers can fully exclude from income amounts paid as accelerated death benefits if the insured has been certified by a physician as terminally ill. These amounts are excludable, to the same extent they would be if paid under a qualified LTC insurance contract, if the insured has been certified by a licensed health care practitioner as chronically ill.

(1) An eligible individual can establish a Health Savings Account (HSA). An eligible individual (for any month) is:

• Covered under a high deductible health plan (HDHP) on the first day of such month.

• Not covered by another health plan that is not an HDHP (with certain exceptions for plans providing limited types of coverage).

• Not enrolled in Medicare.

• Not claimed as a dependent on another person’s tax return.

(2) Generally, an HDHP is a health plan that meets certain requirements for deductibles and out-of-pocket expenses.

(3) The table below lists the annual deductibles and maximum out-of-pocket expenses, including deductibles, co-payments, and other amounts and not including premiums.

(1) For a Health Savings Account (HSA) established by an employee, the employee, the employee’s employer or both may contribute to the HSA of the employee in a given year.

(2) For an HSA established by a self-employed (or unemployed) individual, the individual may contribute to the HSA.

(3) Family members may also make contributions to an HSA on behalf of another family member or any other person if that other family member is an eligible individual.

(4) The maximum annual contributions for individuals (and their spouses covered under the high deductible health plan (HDHP)) age 55 and older at the end of the tax year, are as follows:

(5) After an individual is enrolled in Medicare, contributions (including catch-up contributions) cannot be made to an individual’s HSA.

(6) HSA contributions made by an eligible individual, a family member, or any other person on behalf of an individual, are:

• Deductible by the eligible individual in determining adjusted gross income.

• Deductible if made in cash and not in the form of stock or other property.

• Not deductible as a medical expense itemized deduction.

• Not deductible if the individual is being claimed as a dependent on another person's tax return.

• Not deductible on Form 1040, U.S. Individual Income Tax Return or as medical expenses on Schedule A, if the employer made the HSA contributions.

• Computed using Form 8889, Health Savings Accounts (HSAs), Part I, HSA Contributions and Deduction and reported on Form 1040. . For tax year and 2020, taxpayers report the deduction on Line 12 of Schedule 1 and attach to Form 1040 or Form 1040-SR, U.S. Income Tax Return for Seniors. Beginning in tax year 2021, taxpayers report the deduction on Line 13 of Schedule 1 and attach to Form 1040, Form 1040-SR or Form 1040-NR, U.S. Nonresident Alien Income Tax Return.

(7) For calendar year taxpayers, the deadline for contributions to an HSA is generally April 15 following the year for which the contributions are made.

(1) Distributions from a Health Savings Account (HSA) used exclusively to pay for qualified medical expenses of the account beneficiary, or their spouse or dependents, are excludable from gross income. A taxpayer may use the amounts in an HSA for qualified medical expenses and exclude them from gross income even if they are not currently eligible for contributions to the HSA.

(2) Qualified medical expenses are expenses incurred after the HSA has been established and paid by the account beneficiary, their spouse, or dependents for medical care as defined in IRC 213(d) but only to the extent the expenses are not covered by insurance or otherwise.

(3) For purposes of determining the itemized deduction for medical expenses, medical expenses paid or reimbursed by distributions from an HSA are not treated as expenses paid for medical care under IRC 213.

(4) Health insurance premiums are not considered qualified medical expenses except for the following:

• Qualified long-term care insurance.

• Continuation coverage under federal law (e.g., Consolidated Omnibus Reconciliation Act (COBRA) or Uniformed Services Employment and Reemployment Rights Act (USERRA) coverage).

• Health care coverage while an individual is receiving unemployment compensation.

• Premiums for Medicare Part A or B, Medicare Health Maintenance Organization (HMO) and Medicare Advantage Plans (Part C of Medicare) (for individuals over age 65).

• Preferred Provider Organization, Private Fee for Service Plans, and Special Needs Plans (for individuals over age 65).

• Premiums for employer sponsored retiree health insurance (for individuals over age 65). For more information refer to, Pub 969, Health Savings Accounts and Other Tax-Favored Health Plans.

(5) Any amount of the distribution not used exclusively for qualified medical expenses of the account beneficiary, spouse or dependents is includible in gross income of the account beneficiary and is subject to an additional 20% tax on the amount includible in income.

(6) Taxpayers use Form 8889, Health Savings Accounts (HSAs), Part II, HSA Distributions, to compute the taxable amount of the HSA distribution. Taxpayers include the taxable amounts in the total amount reported on Line 8 of Schedule 1 and attach to Form 1040. Taxpayers are instructed to enter "HSA" and the amount on the dotted line next to Line 8. For tax year 2020, taxpayers include the additional tax, if applicable, on Line 8 of Schedule 2, and attach to Form 1040, Form 1040-SR or Form 1040-NR, U.S. Nonresident Alien Income Tax Return. Taxpayers are instructed to enter "HSA" and the amount next to Line 8. Beginning in tax year 2021, taxpayers include the additional tax, if applicable, on Line 17c of Schedule 2, and attach to Form 1040, Form 1040-S, or Form 1040-NR.

(7) If the account beneficiary is no longer an eligible individual (e.g., entitled to Medicare benefits, or no longer exclusively has an HDHP), they can continue to exclude distributions used exclusively to pay for qualified medical expenses from their gross income.

(8) Upon death, any balance remaining in the account beneficiary’s HSA becomes the property of the individual named in the HSA as the beneficiary of the account.

• If the account beneficiary is the surviving spouse, the surviving spouse pays income tax only on HSA distributions used to pay expenses other than qualified medical expenses.

• If the account beneficiary is a person other than the surviving spouse, the HSA ceases to be an HSA as of the date of death. The account beneficiary must include in their gross income the fair market value of the HSA assets as of the date of death. The includable amount in the account beneficiary’s gross income (except the decedent’s estate) is reduced by any payments from the HSA made for the decedent’s qualified medical expenses, if paid within one year after death.

(1) The law authorizes any state to offer its residents the option of setting up an ABLE account.

(2) The account owner and designated beneficiary of the account is the disabled individual. In general, a designated beneficiary can have only one ABLE account at a time, and must be disabled before their 26th birthday.

(3) Eligible individuals may establish an ABLE account in any state. This allows individuals to set up ABLE accounts and choose the state program that best fits their needs (i.e., investment options, fees, and account limits).

(1) Total annual contributions to an ABLE account are limited to the annual gift tax exclusion amount. The annual gift tax exclusion for 2019-2021 was $15,000, for 2022 it was $16,000, for 2023 it is $17,000, and for 2024 it is $18,000. Distributions of earnings are tax-free if used to pay qualified disability expenses.

(2) Qualified disability expenses are related to the designated beneficiary’s blindness or disability and help that person maintain or improve health, independence and quality of life. For example, they can include housing, education, transportation, health, prevention and wellness, employment training and support, assistive technology and personal support services and other disability-related expenses.

(1) The ABLE Act allows a state to establish and maintain a new type of tax-advantaged savings program (under IRC 529A of the Internal Revenue Code). States use the following two information returns:

• Form 1099-QA, Distributions From ABLE Accounts

• Form 5498-QA, ABLE Account Contribution Information

(2) These forms are not available on CC IRPTR. If the taxpayer has questions concerning the Form 1099-QA or the Form 5498-QA, direct them back to the state where they established their ABLE account. The state where the ABLE account was established issues the forms to the taxpayers. Refer to the Pub 907, Tax Highlights for Persons With Disabilities, for additional information.

(1) The following Individual Retirement Account File (IRAF) Filing History Codes display on IMF entity:

(1) Use abstract numbers with any Individual Retirement Account File (IRAF) MFT 29 tax adjustment. See IRM 21.6.5.4.11.7, Individual Retirement Account File (IRAF) Tax Adjustments, for information on input of adjustments with abstract numbers. Valid item Abstract Numbers are:

(2) The TC 29X amount must equal combined Abstract Numbers 160, 162, 233, 235, 236, 237, and 238 amounts.

(1) Input adjustments to Individual Retirement Account File (IRAF) MFT 29 modules as Non-Source Document (NSD) adjustments. Since all information/forms are scanned into CII, there is no need for source document adjustments.

(2) Use blocking series (BS) 00 on all IRAF adjustments except in the following specific cases:

(3) Do not use any SC or RC when adjusting MFT 29 IRAF accounts. Source codes (SC) and reason codes (RC) cannot post to MFT 29 IRAF accounts. For information on hold codes, refer to IRM 21.5.2.4.15, Rules on Hold Codes (HC).

(1) The input of a TC 971 AC 144 on a MFT 30 module generates a corresponding MFT 29 module for Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts. The TC 971 AC 144 is input using CC REQ77.

• The TC 971 AC 144 generates an IRAF MFT 29 module with a TC 150 for .00. A TC 971 AC 144 also generates on the MFT 29 module.

• The TC 971 date is also the TC 150 date on the MFT 29 module. Applicable penalty and interest generate based on the TC 150 date.

• IRAF MFT 29 modules generated by the input of TC 971 AC 144 to the corresponding IMF MFT 30 account are identified by the TC 150 DLN. The IRAF MFT 29 TC 150 DLN is the same as the TC 971 AC 144 DLN, except the document code is 11 and the Julian date is always 886.

• The type indicator and the IRAF Spousal Indicator (if applicable) generate and post to CC IMFOLR.

• Normal tax liability offsets occur.

(2) The IRS permits Installment Agreements (IA) and Direct Debit Installment Agreements on MFT 29 modules.

(3) Systemically generated refunds, TC 846, occur on MFT 29 modules using the same programming process as MFT 30 systemic refunds.

(4) If a Form 1040-X, Amended U.S. Individual Income Tax Return, is received and the additional tax is for the Form 5329, but no Form 5329 is attached, correspond with the taxpayer either by phone or Letter 1803C, IRA/Retirement Plan Inquiry, requesting the Form 5329.

• If a response is received, follow the procedures in (6) below to establish the MFT 29 module and assess the tax.

• If no response is received, prepare a dummy Form 5329 and edit the amount from the Form 1040-X to the dummy Form 5329. Follow the procedures in (6) below to establish the MFT 29 module and assess the tax. Input the adjustment to reflect the primary taxpayer if unable to determine which spouse is reporting the additional tax.

(5) The following conditions require establishing an MFT 29 module if one does not currently exist:

• A Form 5329, with entries in Parts III - IX, received with Form 1040-X or amending an originally filed Form 1040, U.S. Individual Income Tax Return.

• A loose Form 5329, with entries in Parts III - IX, received without a Form 1040 filing (taxpayer is not liable for filing Form 1040. This includes statute years.)

Note: Do not push code loose Forms 5329. TC 930 is not valid for IRAF MFT 29 modules. Establish the IRAF MFT 29 module following the procedures in (6) below.

(6) Follow these procedures to establish an MFT 29 module with the input of a TC 971 AC 144 on an MFT 30 account:

1. Determine if there is an entity on IMF. If none exists, establish an entity by inputting a TC 000 on CC ENMOD. Monitor for posting of the entity; once posted follow procedures below.

   Note: If multiple Forms 5329 are received, establish the entity by inputting TC 000 on CC ENMOD, using the tax period for the earliest Form 5329 received.

2. On the IMF MFT 30 account, input a TC 971 AC 144 using CC REQ77 for the tax period as shown on Form 5329. A TC 971 AC 144 cannot be input to MFT 29. It generates on the MFT 29 account when input to the corresponding MFT 30 tax year.

3. When inputting TC 971 AC 144 to the IMF MFT 30 account, include the cross reference (XREF) Social Security number (SSN) (as shown on Form 5329). The XREF MFT 29 tax period will generate (the same tax period as the MFT 30). It is possible to input two TC 971 AC 144 transactions on the same MFT 30 module (one for the primary SSN and one for the secondary SSN).

   Exception: If the Form 5329 is for the secondary SSN on a joint return, compare the Form 5329 name control with CC INOLES IMF name control. If the name control does not match, follow procedures in (d) below to avoid unpostable code 169-9.

4. If Form 5329 is for the secondary SSN, compare the Form 5329 name control with CC INOLES IMF name control. If the name control does not match CC INOLES, input a TC 971 AC 144 on MFT 30 for the secondary SSN, for the same tax period as shown on Form 5329. Do not input TC 971 AC 144 to the MFT 30 for the primary SSN. Continue with procedures in (e) - (j) below.
   

   Note: For these types of cases, it may be necessary to establish an entity on CC ENMOD with TC 000 for the name as shown on Form 5329 (if the IMF name control is a mismatch and an IMF entity with this name control is not present). This allows an MFT 29 module to generate with the name control as shown on Form 5329.

5. Input the received date (required) for TC 971 AC 144. Use the Form 5329 received date for input of the TC 971 transaction date. This posts on the MFT 29 module as the TC 150 .00 date and establishes the Form 5329 ASED.

   Note: If a Form 5329 is received without the original Form 1040, the ASED begins with the posting of the MFT 29 TC 150 date. The ASED is the due date of the return or the date of filing (received date), whichever is later. If Form 1040 and Form 5329 are received and processed at the same time, the MFT 29 and MFT 30 ASED are the same.

6. Input the TC 290 amount on IRAF, MFT 29, for the taxpayer shown on the Form 5329. Include the corresponding IRAF abstract numbers, and use hold code 3, for the taxpayer on the Form 5329. Refer to IRM 21.6.5.4.11.2, Individual Retirement Account File (IRAF) Abstract Numbers, for a list of related codes.

7. Input the appropriate blocking series; refer to IRM 21.6.5.4.11.3, Individual Retirement Account File (IRAF) Blocking Series and Source Documents.

8. Input a posting delay code for 3 cycles. This allows the MFT 29 module to generate from the input of the TC 971 AC 144 on the MFT 30 module. The MFT 29 module posts with a TC 150 .00 and TC 971 AC 144.

9. If a subsequent adjustment is needed to abate tax (usually from a waiver request for excess accumulations tax), input TC 291 amount on IRAF, and hold code 3, MFT 29 with the corresponding IRAF abstract numbers. Input posting delay code for 4 cycles. Refer to IRM 21.6.5.4.5, Excess Accumulations, for information about this type of excise tax.

   Reminder: Create a dummy MFT 29 module using CC MFREQD prior to adjustment.

10. Do not use any source codes (SC) or reason codes (RC) when adjusting MFT 29 IRAF accounts. Source codes (SC) and reason codes (RC) cannot post to MFT 29 IRAF accounts. For information on hold codes, refer to IRM 21.5.2.4.15, Rules on Hold Codes (HC).

11. Send Letter 1803C to the taxpayer and explain the actions taken.

(7) Use extreme caution when inputting these transactions. The MFT 29 module (with a TC 150) may have been established based on previous input of a dummy Form 1040 with a Form 5329 sent through processing. A subsequent TC 290 and IRAF abstract numbers (based on input of TC 971 AC 144) will also post. This would create a duplicate assessment.

(1) An Individual Retirement Account File (IRAF) adjustment or credit transfer will not post unless an entity is established on the IRAF for a particular module.

(2) An IRAF entity is established when a Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, posts as a TC 150 and is updated when a later return posts.

• The name line from Form 5329 is transcribed.

• All other entity data is extracted from the IMF.

(1) The additional 10% tax is adjusted on the IMF account for:

• Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, Part I, Additional Tax on Early Distribution.

• Form 5329, Part II, Additional Tax on Certain Distributions From Education Accounts and ABLE Accounts.

(2) No adjustment is made to the IRAF (MFT 29) account.

(3) Determine if the 10% tax is included in the posted IMF (MFT 30) tax.

(4) If a loose Form 5329 with Part I or Part II completed is received, research the account (both accounts for MFJ taxpayers) to determine if the income and tax are reported on the return. If no return on file, send the taxpayer Letter 282C, Return Not Received; Copy Requested/Received, and advise them that a Form 1040, U.S. Individual Income Tax Return, is required to be filed with the Form 5329. If the income and tax are reported on the return, then determine if an adjustment is needed. If there is no filing requirement to file an income tax return, prepare a dummy return and send it with the Form 5329 for processing. See IRM 3.11.3.35.2, Loose Form 5329, for further instructions.

(5) If the income on the Form 5329, Parts I or II is included as income on the tax return, make the adjustment to include the 10% tax.

(6) Consider changes to income tax and/or the 10% tax.

(7) Determine if an IMF tax adjustment is needed.

(1) Adjust the additional tax (excise tax) on excess contributions to Traditional IRAs, Roth IRAs, Coverdell ESAs, Archer MSAs, HSAs, and ABLE Accounts from Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, on the IRAF, MFT 29.

(2) Adjust the additional tax on excess accumulation in qualified retirement plans (including IRAs) from Form 5329, Part IX, on the IRAF, MFT 29.

(3) When adjusting the tax:

• Ensure an entity for the module is present or established prior to taking any adjustment action.

• Consider the impact on both the IMF (MFT 30) and IRAF (MFT 29) modules.

• Use TC 29X with proper item abstract number to adjust an established module on IRAF MFT 29. Refer to IRM 21.6.5.4.11.2, Individual Retirement Account File (IRAF) Abstract Numbers, for definitions of the abstract numbers.

• The TC 29X amount must equal combined Abstract Numbers 160, 162, 233, 235, 236, 237, and 238 amounts.

(4) For the blocking series, refer to IRM 21.6.5.4.11.3, Individual Retirement Account File (IRAF) Blocking Series and Source Documents.

(5) Do not use any source codes (SC) or reason codes (RC) when adjusting MFT 29 IRAF accounts. Source codes (SC) and reason codes (RC) cannot post to MFT 29 IRAF accounts. For information on hold codes, refer to IRM 21.5.2.4.15, Rules on Hold Codes (HC).

(6) Do not enter a correspondence date when adjusting MFT 29 accounts.

(7) The refund generates from the MFT 29. Do not move the payments back to the MFT 30 to refund.

(8) Transfer a remittance for IRAF, if necessary, using CC ADD/ADC 24. Refer to IRAF credit transfers in IRM 21.6.5.4.11.8, Individual Retirement Account File (IRAF) Credit Transfers.

(1) Transfer any additional credit using CC ADD/ADC24.

(2) Overpayments refund from IRAF (MFT 29) accounts. A TC 846 will systemically generate and post to IRAF (MFT 29) modules, providing freeze code conditions preventing a refund are not present. Offsets to any outstanding liabilities also apply to IRAF. Take the following action to transfer a payment from IRAF to IMF when applicable:

(3) Send Letter 1803C, IRA/Retirement Plan Inquiry, to the taxpayer to explain the actions taken.

(4) If the credit was applied to the Unidentified or Excess Collection file, prepare documentation to move the payment to the IRAF account. Refer to IRM 21.5.7.3.5, Researching Unidentified Remittances and Excess Collection File, for more information.

(1) Internal IRAF Notices generate to notify the campus that additional action or review of the IRAF module (MFT 29) may be necessary.