Understanding Form 5498: IRA Information & Tax Implications

Form 5498 is used to report all information from your Individual Retirement Arrangement (IRA) to the Internal Revenue Service (IRS). The basic information you will need to report includes your contributions, required distributions, catch-up contributions and the fair market value of the account. These items will all be recorded with the IRS to assure you both receive the tax benefits promised you and pay the tax obligations you owe.

Purpose of the 5498

The IRS tracks the amount you contribute each year to your IRA. This is recorded for a few purposes. First, you may be able to deduct these contributions on your Form 1040 in a given year to reduce your taxable income. This depends on the type of IRA you have - Roth or traditional - as well as whether you are filing singly or jointly. The IRS also needs this information to assure you are taking any maximum distributions required once you reach retirement age. Finally, the IRS will track the fair market value of the account to learn how much it has appreciated. While this amount is not taxed in real time, it will be used to calculate your required withdrawals and tax obligation in the future.

Getting a 5498

Your Form 5498 should come to you from your trustee or account manager in January or February each year. The trustee must provide you with the fair market value and required minimum distribution information by January 31. You must receive the form in full by May 31. This does not give you much time to finalize all of your taxes. As such, if you do not receive a form from your trustee, ask for one directly as soon as possible. You may need to file for an extension on your tax filing if your trustee is extremely delayed in supplying you the information. This is a vlid reason to be granted the extension, and your trustee may even be penalized as a result of neglecting to provide you the information. 

Returning a 5498

Once you receive your Form 5498, keep it with your other tax forms. You may be receiving 1099s, W-2s and other forms of income statements. Form 5498 should be partly filled out for you with items such as account information, contributions, distributions and fair market value. These items may be used additionally on your Form 1040. Once you have filled in all adequate information, Form 5498 is filed with your annual income tax.

Implications of a 5498

If you have made contributions this year, have a traditional IRA account and filed singly, you will receive a deduction on your income tax. Your contributions are limited based on your income, and your trustee should keep you advised on your limits. If you converted, rolled over or distributed any income out of your IRA, you may owe taxes. All distributions on traditional IRAs are taxed; early distributions are also penalized at 10 percent. A conversion from a traditional to a Roth IRA may result in a one-time tax payment. Rollovers from one retirement account to another should not be taxed unless the structure of the account is changing.