According to https://www.irs.gov/pub/irs-pdf/i5329.pdf
it states that the use of Form 5329 is to report additional taxes on:
• IRAs,
• Other qualified retirement plans,
• Modified endowment contracts,
• Coverdell ESAs, (1099-Q)
• QTPs,
• Archer MSAs,
• HSAs, or
• ABLE accounts.
Based on personal experience, even if the distributions are tax-free ( aka money you receive ) they still can be taxed. Specifically, let's say you had a Coverdell ESA's ( like an Educational Prepaid Program ), if the expenses of the school are less than what you received you will be taxed on the portion not going toward your education.
For example, you get $4,000 from a Prepaid Contract but the college expenses are only $2,000. The remaining 2000 dollars will be taxed. This scenario can be applied to similar situations, such as IRA's or QTP's where only a certain amount or percentage is tax-free.
So let's go over it one more time, Form 5329 is used to report "additional" taxes. This is why it may pop up and stop you from using the free version. Some forms come with instructions, I highly suggest reading it as it generally tells you if you will have to use a 5329, or type in "www.irs.gov/(your form code) and read the instructions there.
Now do I think Turbo Tax should charge 119 dollars for this one tax form you have no control over... no, no I do not. I'm furious and don't agree with this system at all. Makes me not want to use Turbo Tax at all. But I want to help others in my situation and try to provide guidance with the little knowledge I've learned.
