Coverdell Form 5329

[TXpiper]

Hi Turbo Tax Community, 

As the custodian for my two sons' Coverdell accounts, I am trying to fill out form 5329 to pay the 6% excise tax on 2021 excess contributions. I was advised to indicate that I am the beneficiary of a Coverdell within Turbotax even though I am not - this was intended to trick Turbotax into populating the 5329 excise tax portion for Coverdells. I was then advised to print and mail out that 5329 form to the IRS in order to address the excise tax from 2021 without amending my 2021 return.  

1) If I proceed as indicated above, is the IRS going to have a problem with my name, social security number, and signature on that 5329 form instead of the beneficiaries (my sons?). They are both small children.

2) If the IRS would have a problem with the first approach, is the correct route to print a blank 5329 from the IRS website and fill out my sons' information and my signature as the custodian? 

3) Does either the first or second approach also apply to the 6% excise tax for the excess contributions that remained in the accounts through 2022?  For example, do I file my 2022 return and then mail the 5329 forms for the 2022 excise tax separately?  

   As a side note, I am in the process of completing rollovers for the excess 2021 contributions before May 31, 2023 so that the excise tax does not apply in 2023. 

4) Are earnings included with the excess contributions?  

Thank you very much for your help.

[AmyC]

1. Legally, the parent must manage the 529 for the minor. You could mail the one form and then if the IRS asks questions later, it could be cleared up.

2.I agree with you that it makes more sense to do one for each owner.

2021 Instructions for Form 5329

2021 Form 5329 (PDF): Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Acc...

3. I recommend you remove all of the 2022 excess plus earnings before June 1, 2023 so that you are exempt from the penalty for 2022. Another option, reduce your contributions this year so you can use the excess and earnings to count towards 2023.

See Pub 970 page 43 for excess contributions and exceptions.

4. Earnings are part of the excess you need to remove but not part of the penalty on Form 5329.

Form 5329 instructions TY2021 page 6 state: If you filed your return without withdrawing the excess contributions, you can still make the withdrawal, but it must be made before June 1, 2022. If you do, file an amended return. Report any related earnings for 2021 on the amended return and include an explanation of the withdrawal. Make any other necessary changes on the amended return (for example, if you reported the contributions as excess contributions on your original return, include an amended Form 5329 reflecting that the withdrawn contributions are no longer treated as having been contributed).