IRS Form 5498: What You Need to Know

IRS Form 5498 is the form which the IRS requires STRATA (as an IRA custodian) to file each year to report the fair market value (FMV) of the alternative investments held in your self-directed IRA. The form indicates any contributions, rollovers, conversions and recharacterizations received in a self-directed Traditional, Roth, SEP or SIMPLE IRA during the prior tax year. It’s also used to indicate whether a Traditional IRA owner has reached age 70½ or older and is required to take a Required Minimum Distribution (RMD).

Form 5498 is filed with the IRS on or before May 31st by IRA custodians, with a copy sent to the IRA owner. The information is then used by the IRS to verify what was reported on the IRA owner’s tax return. For example, if you rollover funds from a 401(k), 403(b), or other workplace savings plan to an IRA, the amount reflected on Form 5498 should match the eligible rollover amount the retirement plan administrator reported on the Form 1099-R which it files to report the distribution.

A discrepancy between the deduction claimed on the IRA owner’s tax return and the amount reported on Form 5498 will likely trigger a letter from the IRS, and a request for additional taxes, interest and penalties to be paid if there is a tax underpayment.

Reporting of IRA alternative investments on Form 5498

When alternative investments or “non-traditional assets” are held in an IRA, the IRS has expanded the information that custodians like STRATA must report on the 5498, primarily because these investments are not routinely traded on established securities markets and do not have a readily available FMV. The information helps the IRS identify and target these transactions so they can focus their audit efforts to make sure an appropriate value was reported.

Alternative investments which must be flagged on Form 5498 include private stock or other ownership interest in a corporation, short or long term debt obligations (promissory notes), ownership interests in limited liability companies (LLCs), limited partnerships (LPs), trusts or similar entities, real estate, option contracts and other assets that do not have a readily available FMV. The main purpose of IRS Tax Form 5498 is to give the IRS access to the annual valuation of IRA funds on a year-to-year basis. With alternative assets, such as real estate and private equity, calculating the valuation of the fair market value (FMV) can be more difficult and custodians like STRATA will usually require the IRA owner or the investment issuer/sponsor to provide the FMV. Ultimately, Form 5498 puts the regulatory pressure on IRA custodians to report the FMV and alternative investment types held in an IRA.

The Bottom Line

You can put your pens down and your stamp booklets away. The IRS does not require that you send in a copy of Form 5498 with your tax return. The form is for your records and to let you know what STRATA is reporting to the IRS. Simply review to ensure your transactions are properly reported, and keep the document for your records. If you work with a tax professional, you should provide the 5498 as part of your tax records.

Individuals may typically call their financial advisors or STRATA for any questions or discrepancies on Form 5498. STRATA is here to help. Whether you are an IRA owner or a financial advisor with clients that have alternative investment IRAs, STRATA can be a source of information if you have any questions regarding IRS Tax Form 5498.

As a self-directed IRA (SD-IRA) and alternative IRA custodian, STRATA can hold alternative assets in IRA accounts, allowing individuals to take better control of their financial futures. By working with a knowledgeable custodian like STRATA, you’ll have the best resources available for understanding the IRA rules and regulations to help keep your IRA clear of IRS issues.

Have questions about IRS Form 5498? See our FAQs under Managing Your Account.

 

 

ABOUT STRATA TRUST COMPANY

When alternative IRA custody is this easy, the possibilities are endless.

Founded in 2008, STRATA Trust Company has built a reputation delivering streamlined and straightforward custody. Our service-driven team has helped thousands of investors and investment professionals unlock opportunities in self-directed retirement accounts across a wide range of alternative investments. Formerly known as Self Directed IRA Services, Inc., STRATA has strategically realigned to support a broad range of investment professional partners in growing their IRA asset base – always with an eye on the future.

With offices in Austin and Waco, Texas, STRATA operates as a Texas-chartered trust company with direct oversight by the Texas Department of Banking. Led by a seasoned management team with over 150 years of collective experience, 33,000+ investors empowered and over $1.8 billion in assets under custody, our customers experience a clear difference in our approach to IRA custody.

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