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What is IRS Form 5498?

When an individual makes a jump from being a salaried individual to a retired individual, then she or he does so with a huge drop from the amount of salary per month to the amount of pension per month. Hence, many people start planning from retirement quite early, putting away a little bit of money and investing it in avenues which will yield them a continuous stream of money when they need it later. In the United States, financial institutions provide for what is known as “individual retirement plans”, which provide for tax benefits on retirement savings. It is an investing implement which is employed to earn and allocate resources for retirement savings.

The term IRA (Individual Retirement Account) has come to describe both individual retirement accounts as well as the wider set of individual retirement arrangements in general includes an individual retirement account; a safekeeping account arrangement with the sole objective of benefits to taxpaying individuals and/or their beneficiaries; and an individual retirement endowment, by which the taxpaying individuals buy and acquire an endowment contract from a life insurance company.

Eventually, earnings on the IRA are taxed as income, although the tax rate is lesser. IRAs have come to become valued tax management tools for individuals, as the IRA allows for the benefit of tax deductions in the working years, along with a lower tax rate in the retirement years.

Understanding the IRS Form 5498

If, as a salaried individual, you own an IRA, then your account’s issuer or executor is supposed to report your contributions to the same account that you do each year to the IRS (Internal Revenue Service). The information so submitted is given in on the Form 5498. A twelve-monthly document that is supplied by the institution that manages your IRA account, this Form 5498 not only reports info about IRAs but also the other arrangements preferred due to tax-savings such as HSA, MSA and ESA plans.

The arrangement is to be filed with the IRS and delivers independent validation to the same as to what amounts the individual contributed in which accounts.A copy of the same document also exists with the individual whose IRA account it is. Apart from the above the form also reports the FMV (fair market value) of the same group of accounts as on December 31st of that accounting or fiscal year and also if the taxpayer is supposed to be undertaking some minimal amounts of distributions for the particular year.

Essentially, the Form 5498 exhibits traditional IRA contributions made by the individual during the previous tax year.

Why the receipt of IRS Form 5498?

The Federal law and the IRS requires the IRA account executor or custodian to report deductible and non-deductible contributions, re-characterizations, conversions and roll-overs made to the individual’s traditional, SIMPLE, SEP or Roth IRA during the given tax year. For each IRA account, the individual shall receive one form. Basically you as a taxpayer have received the IRS form because you executed a roll-over or a regular contribution to your IRA account during the year, which includes shifting monies from a Roth IRA to a traditional one (and vice versa), moving and shifting contributions made earlier from a Roth IRA to a traditional IRA (or vice versa), and/or making a contribution to an SEP IRA.

When will I receive the IRS Form 5498?

There are 2 mailings of the IRS Form 5498. One must be postmarked by the 31st of January of the following year, covering all current year contributions from 1st  January – 31st December of the previous year. The 2nd mailing is due 31st May of the subsequent year, covering all prior year contributions made from 1st Jan– 15th April (or whenever the tax filing time limit is).

Why am I receiving the Form 5498 now?

Since in the first mailing the Form 5498 is sent out by 31st Jan to individuals, it will be mandatory for them to undertake some minimal distribution (RMDs) through the year. And since it is finally filed with the IRS by 31stMay,the Form allows the taxpayers to make contributions so as to be able to report the same before the filing. The Form is sent after 15th April because confirmation happens only after that date, and hence is sent out after that.

What is RMD?

RMDs are minimal amounts that an individual with a superannuation plan should draw out annually beginning with the year that she or he reaches 70.5 years of age or the year in which he/she retires, whichever is later.

If the individual fails to draw out the required amount of funds, the IRS fine sthem with a 50% tax on that amount. RMD increases as you get older.

Receipt of Form 5498 after filing IT return

In general, if the contribution quantities stated in Box 1, 2, 3, 4, 8, 9 or 10 of the Form 5498 do not match with your records, contact the IRS on the telephone number provided on the form.

Checking Box 11 on the Form 5498

Box 11 on the Form is basically checked if the individual is at least 70 ½ years or above in the current year. Checking the box is an alert to individuals that they are to start undertaking any requisite minimum distributions from their TIAA-CREF traditional, SEP or Roll-over IRA accounts before 1st April of the year subsequent to the year they turn 70 ½.

Purpose of Form 5498 to individual

The copy of the Form 5498 you receive is only for your information and personal records. Do not attach it to your tax return. You won’t need to attach a copy of it to your income tax return.

What is the tax effect of IRS Form 5498?

There are no tax consequences or effects until and unless requisite minimum distributions are made from the account.

IRA contribution limits

Normally, contributions are based on the earned or received income, which includes all the taxable salaries from occupations. However, the phased-out income levels could additionally lower the contribution limits.

Which contributions on my IRA accounts are deductible on my IT return?

Contributions to traditional IRA are generally deductible, within certain restrictions –

· If neither your spouse nor you are an active participant in an company backed retirement plan for the year.

· If either your spouse or you are an active participant, and if your modified adjusted gross revenue is at the minimum
o   $70,000 (filing jointly and married),
o   $10,000 (filing separately and married), or
o   $50,000 (single),
Then your capacity to make deductible contributions to a traditional IRA phases out completely.

· If you are not an active member but your spouse is, you file a joint tax return, and your modified adjusted gross revenue is at the least $160,000, then your ability to make deductible contributions phases out completely (but not your spouse’s).

Contributions to a Roth IRA are not deductible. SEP IRA contributions are deductible if you’re self-employed, but cannot be done under an employer-managed IRA.

Excess contribution to IRA withdrawn later still reported on Form 5498

Federal Law requires the original contribution is required to be reported on the Form 5498 by your IRA custodian, even if it was removed later. The excess contribution is required to be reported separately by the individual on the Form 1099-R for the particular year in which it was removed.

Determining non-deductible and taxable amounts on Form 5498 and reporting them

Form 8606 is to be filed to determine the taxable amount of a Traditional or Roth IRA due to conversion. If you have remitted nondeductible IRA contributions and received distribution from non-deductible funds, converted or re-characterized IRA funds, or if you have received Roth IRA distributions, then you’re required to complete Form 8606 with the original amounts.Your conversion, re-characterization and quarterly statement have the info necessary to complete this form. Part II of Form 8606 lists out the detailed instructions. Additionally, participants should report any non-deductible contributions included in Box 1 on Form 8606.

Form 8606 is also used to report conversions to balance out the distribution on Form 1099-R. Failure to complete Form 8606 may result in fines.

Re-characterization of traditional IRA to Roth IRA

The custodian of the retirement plan is required to report the original contribution to the traditional IRA on Form 5498, even though it was re-characterized. The amount that was re-characterized into your Roth IRA after being removed from the traditional one is reported separately on Form 1099-R.

Reporting of excess contribution not withdrawn

Any excess contributions included in Box 1 should be reported on Form 5329 by the individual.

Crosschecking the Form 5498 with IT return

  • Box 1, Form 5498 – contributions to a traditional IRA (includes all contributions to a traditional IRA designated for the preceding tax year, and does not include contributions to Roth IRA)
  • Line 32, Form 1040 – deductible traditional IRA contributions
  • Line 1, Form 8606 – non-deductible traditional IRA contributions
  • Box 10, Form 5498 – contributions to a Roth IRA designated for preceding tax year.
  • Line 28, Form 1040 – contributions to SIMPLE and SEP IRA (for self-employed individuals; for an employer-managed IRA, contributions are shown in Box 12, W-2, “F” – SEP IRAs, “S” – SIMPLE IRAs)
  • Box 2, Form 5498 (roll-over contributions) should match with 1099-R Forms exhibiting direct and indirect rollovers both.
  • Box 4, Form 5498 (Roth IRA conversions) should match 1099-R Forms and line 8, line 16 or line 21 of Form 8606.
  • Box 2, Form 5498 SA (Totals of HSA contributions) must match with Box 12, Form W2, and Code “W” (Additionally, individual contributions must match with the sum shown on Line 25 of Form 1040).
  • Box 1, Form 5498-SA (Archer Medical Savings Account contributions) must match with totals shown on Line 2, Form 8853.

Determining the basis of IRA

Basis for the first year of contribution to an IRA begins with zero. If its your first year of contribution, then you are required to review your life-to-date under-the-plan contributions. You can refer to your yearly IRS Form 8606 or the IRS Publication 590 to retrieve or calculate your basis.

Viewing Form 5498 online

You can view the form if you have signed up for the e-delivery option. They become available by 31st January every year.

  • Log in > Select Manage My Portfolio > Select “E-statements & Reports”
  • If you are not registered, select “Register for online access” on the homepage and follow the instructions

Rollover contributions and Form 5498

Roll-overs occur when moneys are deposited into one IRA account after having removed it from removed from another within a period of 60 days. While this is reported on Form 1099-R, the recipient IRA must also report the receipt of the rollover on Form 5498. Reporting rollover contributions of the IRA on Form 5498 confirms to the IRS the quota of the distribution from your previous IRA, and hence it appears on Form 5498 as well.

Other information with respect to Form 5498

The instructions on Forms 1040/1040A, IRS Publication 590, and the IRA documents give the individual all other information required for reporting requirements for your IRA. Call the IRS office for additional info at the number given on their website (800-829-1040) or visit www.irs.gov.

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Erich J. Ruth

Erich J. Ruth provides technical support for National Software which is the parent company for 1099FIRE. 1099FIRE develops and markets a comprehensive range of products that enables any size of business or institution to effectively manage and comply with year-end filing requirements. 1099FIRE is an employee-owned company located in Phoenix, Arizona.

If you have any questions or comments about our software, feel free to contact us at any time.

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