Think of Form 5498 as the IRS’s GPS tracking device for IRA funds. Each year a contribution is made to an IRA, the financial institutions must issue Form 5498 to owners and the IRS by May 31st. The common question received from clients is “Why am I receiving this document after tax season?” The form is informational only and is used to communicate important IRA information to the IRS. Form 5498 is issued in May so that January thru April contributions for the previous tax reporting year can be reflected. Some financial institutions, such as Fidelity, report the documents earlier in the tax year with the premise that if a previous year contribution is made an updated Form 5498 is issued by May 31st.
The purpose of the form is to report pertinent information, such as the type of IRA, contributions, rollovers, and recharacterizations. The form also reports Fair Market Value as of December 31st and whether or not the IRA is subject to Required Minimum Distributions. In 2014 a new optional format was created for financial institutions to categorize hard to value IRA investments, such as real estate, option contracts, and ownership in limited liability companies, just to name a few.
One of the most important uses for Form 5498 is to track non-deductible IRA contributions and ROTH IRA contributions. The reason this is important to owners is to identify non-taxable IRA distributions. Keep in mind non-deductible IRA contributions allow an IRA owner to exclude from taxes a portion of their IRA distributions. This recovery of basis is also important for ROTH conversions as well. For ROTH IRAs an owner needs to know the cumulative value of contributions because these contributions are tax free and without penalty when withdrawn prior to age 59 ½.
If you have not kept track of your IRA contributions, you can obtain, free of charge, a 10 year history of Form 5498 by completing Form 4506-T and submitting it to the IRS.