What Is IRS Form 5498? - Rodgers & Associates

What Is IRS Form 5498?

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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to know the cumulative value of contri­bu­tions because these contri­bu­tions are tax free and without penalty when withdrawn prior to age 59 ½.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.