Form 5498 Explained: What You Need to Know for Taxes

Form 5498 reports the contribution amounts and activity of your Individual Retirement Arrangement (IRA). It may look like an intimidating document, but understanding its purpose and implications can ease your tax season worries. Here's a breakdown of what you need to know:

What is Form 5498?

The IRS uses this form to verify what was reported on your tax return. This form isn't a form you file with your tax return. It's sent to you (and to the IRS) by your IRA trustee, custodian, or financial institution that manages your retirement account by May 31st each year. It summarizes your IRA activity for the previous tax year, including:

• Contributions: Total amount you contributed to your IRA, including traditional, Roth, and catch-up contributions. Employer SEP IRA and SIMPLE IRA contributions are also reported separately on the same IRS form.
• Rollover and Conversions: Any rollovers or conversions you made between different types of IRAs.
• Repayments: If you withdrew and repaid any contributions for tax purposes.
• Required Minimum Distributions (RMDs): If you're age 73 or older, the trustee or custodian notifies the IRS that you have a required minimum distribution due for the year
• Fair Market Value (FMV): The total value of your IRA account at the end of the year
• FMV of certain specified assets - this reflects a separate balance of alternative assets such as real estate, notes, LLC and others

Do I Need To Do Anything With It?

Generally, no. It's for informational purpose only. Form 5498 simply serves as a reference document for your records and the IRS. It helps ensure your reported IRA contributions and IRA activity match what your custodian reports. However, there are a few situations where you might need to take action:

• Verify information: Review the form carefully to confirm all details are accurate and accurately categorized. If you find any discrepancies, contact your IRA trustee or custodian immediately.
• Tax implications: Contributions to traditional IRAs may be deductible within certain limits, while Roth IRA contributions are not. Rollover and conversion activities might have tax consequences. Use the information on Form 5498 to report these accurately on your tax return.
• Keep for records: Keep a copy of the IRS Form 5498 with your other tax documents for at least three years to seven years and longer for a Roth IRA.  Since the IRS Form 5498 is the only IRS form that tracks the Roth contributions, it is essential to keep good records of contributions made.  This form can be helpful for reconciling discrepancies or proving contributions were made in case of an audit.

How Does IRS Tax Form 5498 Work?

When completing a rollover, the initial transaction is a distribution from an IRA.  The custodian will issue an IRS Form 1099-R since distributions are generally taxable. This lets them know the cash value of the distribution.

If you decide to put the dollars back, to avoid taxation, it has to be done within 60 days from the day after you received the distribution. Putting it back is called a “rollover.” The amount can be rolled over into  the same or different IRA of the same type, or an employer plan you participate in like a 401(k) plan.

This is accomplished by depositing the previous distribution back to the eligible retirement plan. The receiving custodian will then report the amount rolled over on the IRS Form 5498 if its an IRA.  Any amounts failed to be rolled over will be considered taxable.  

The IRS then uses form 5498  that shows the rollover to offset any amount previously distributed to nullify taxation.  To reflect this transaction on your tax return, the IRS form 1040 instructions states to report your distribution on line 4a and write “rollover” on line 4b to let the IRS know you rolled over your distribution.  

The IRS also uses IRS form 5498 reports to determine the amount of required minimum distributions. They use a Uniform Lifetime Table to determine the amount using a formula based on your age (the age of the account holder) 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.

Relevant:
How to Properly Report the Fair Market Value (FMV) of Your Self-Directed IRA

When Should I Expect to Get Form 5498?

IRAR Trust is required to send this form to the IRS by May 31, 2024  to be compliant with IRS regulations. You’ll receive an IRS Form 5498 as proof of your contribution,  if you’ve made a contribution for 2023. 

For example, if you contributed for 2023 at any time until the tax deadline (April 15, 2024), you’ll receive a form 5498 showing your contributions made. You won’t receive a form 5498 before the tax filing date— this is by design, allowing for your trustee or custodian to prepare the IRS Form 5498 showing contributions designated for the prior year. 

Why Did I Receive a Form 5498?

If you have received a 5498 tax form, 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 IRS form 1099 R (mailed by January 31st) matches the rollover contribution amount listed in “Box 2” of the IRS form 5498 .

The RMD formula  uses the fair market value reported on the 5498 form to calculate the required minimum distribution amounts for individuals over the age of 73. Make sure to take the full distribution amount— failing to do so will result in a penalty of 25% of the RMD amount that was not taken.

Tax forms are never fun, but the IRS 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.

Remember: If you have any concerns about your IRA or IRS form 5498, consult with a tax professional for personalized advice. IRS Form 5498: https://www.irs.gov/forms-pubs/about-form-5498 .

If you’re an IRAR client, we’d love to assist. Please contact an IRAR Trust representative and someone will help in any way possible.