Understanding Form 5498
Form 5498 lists contributions made to IRAs for the tax year of the form (if no contributions are made, then there is no entry). Reporting applies for traditional IRAs, Roth IRAs, SEP IRAs, SIMPLE IRAs, and deemed IRAs. Deemed IRAs are employee contribution plans set up as traditional or Roth IRAs that are tacked on to an employer’s qualified retirement plan. An IRA trustee or custodian sends Form 5498 to the IRS and taxpayers. It is required to be sent by June 1 following the year to which the contributions relate. Taxpayers don't have to include a copy of the form when they file taxes but should keep it with their tax records.
How to Read Form 5498:
Form 5498 includes information (name, address, and federal identification number) about the trustee and includes the same type of information for the participant, who is the owner of the IRA. The type of IRA is indicated by a checkmark in Box 7 of the form. All IRA contributions for the year from all types of IRAs are added together, with the total entered in Box 1. Some types of contributions are then specifically broken out: Box 10 for Roth IRAs, Box 8 for SEP IRAs, and Box 9 for SIMPLE IRAs. Deemed IRAs are treated as regular IRAs and may be traditional or Roth IRAs. Box 2 reports rollover contributions. Only one rollover is permitted within a 12-month period for IRAs, but there is no cap on the dollar amount of the rollover. A taxpayer who claims a deduction that is greater than the amount reported on Form 5498 likely will receive a letter from the IRS referencing the discrepancy. The letter will ask for additional taxes, interest, and penalties for any tax underpayment resulting from the deduction in excess of the amount reported on the form.
Roth IRA Conversions and Recharacterizations
Box 3 reports conversions to Roth IRAs. The amount converted to this type of IRA does not limit the amount that can be contributed annually to an IRA, including a Roth IRA. As of Jan. 1, 2018, you can no longer recharacterize conversions to a Roth IRA. However, you can recharacterize contributions made to one type of IRA (Roth or traditional) as having been made to the other type of IRA. To do this, simply instruct the trustee of the institution holding your IRA to transfer your contribution amount plus earnings to a different type of IRA, either with the same trustee or a different trustee. Recharacterized contributions are entered in Box 4 of Form 5498.
Withdrawal and Distribution Information
Anyone who is 72 and older (or aged 70½ before Dec. 31, 2019) must take required minimum distributions (RMDs) from the account each year. So must surviving spouses and minor children who inherit an IRA, and elect not to roll it over into an account of their own or withdraw funds on a five-year schedule. RMDs for the current year are based on the account holder's age and on the fair market value of the account as of Dec. 31 of the prior year. For example, the account’s value on Dec. 31, 2019, determines the RMD for 2020. This amount is reported in box 5 of Form 5498. The form notes (via Box 11) whether an RMD is required for the year in which you receive the form—for example, the 2019 form notes whether an RMD is necessary for 2020. Form 5498 also reports the amount of the RMD that should be taken, based on certain calculations made by the trustee (Box 12b), and the date for the RMD (Box 12a). To facilitate RMDs, the form is required to be furnished by January 31 (or the nearest business day), showing the account’s value as of the previous December 31. The form showing the value of the account as of Dec. 31, 2020, for example, must be furnished by Feb. 1, 2021 (Jan. 31 is a Sunday).
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