Tax form 5498— you know it, you probably don’t love it, but do you understand it? The IRS seems to use it, but it’s an unclear form full of codes and terms the average investor doesn’t really know. Want to know more about this form, what you need to do with it, and how it’s used? Let us ease all your concerns and answer your questions, below.
What is Tax Form 5498?
A 5498 is a tax form that IRA Resources files with the IRS on May 31st. It identifies different transactions that can happen within an IRA, like a contribution, a rollover, or a required minimum distribution(RMD). The IRS uses this information to verify what was reported on your tax return.
For example, this form verifies direct and indirect rollover amounts to make sure the money that came out of your IRA went back into an appropriate account. When completing a rollover, the initial distribution is processed (when funds are released from your previous custodian) and the IRS receives a 1099R form. This lets them know the cash value of the distribution. The IRS then uses the 5498 from your current custodian and matches it to that amount, indicating that a “taxable” event didn’t happen, since the full amount of the distribution was received by another qualified retirement account.
The IRS also uses the 5498 to determine the value of your required minimum distribution. They use a Uniform Lifetime Table to determine the amount using an algorithm based on your age (the age of the account-holder, not the age of the IRA itself) and the fair market value of your account. If you want to know more about required minimum distributions, we have more information available on our blog.
When Should I Expect to Get It?
IRA Resources is required to file this form by May 31st to be compliant with IRS regulations. You’ll receive a 5498 if you’ve made a contribution between the dates of January 1st and April 15th following the tax year for which the contributions relate. For example, if you contributed for 2017 any time from January 2018 up until the tax deadline, you’ll receive a 5498. Any contributions made earlier will be detailed on your year-end statement.
You won’t receive a 5498 before the tax filing date— this is by design, allowing for previous-year contributions to be accepted up to the tax filing deadline of April 15th* (*April 17th for tax-year 2017).
What Do I Need to Do with It?
If you have received a 5498, please confirm that the amounts listed on the form and the total value of the account are reported correctly. Additionally, if you completed a rollover for the previous year, please make sure that the expected distribution amount on your 1099R (mailed by January 31st) matches the rollover contribution amount listed in “Box 2” of the 5498.
The IRS will use the fair market value reported on the 5498 to calculate the required minimum distribution amounts for individuals over the age of 70 ½. Make sure to take the full distribution amount— failing to do so will result in a penalty of 50% of the RMD amount that was not taken.
Tax paperwork is never fun, but tax form 5498 is nothing to worry about— you just need to make sure it accurately reflects your account activity for the previous year. It’s important to verify the information is correct— an incorrect account value or an improperly reported transaction can result in a higher tax burden or a larger RMD. Do you have any more questions about this form? Your IRA provider can help— reach out to them for assistance. If you’re an IRAR client, we’d love to assist. Please contact an IRA Resources representative and someone will help in any way possible.