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Understanding IRS Form 5498: A Guide for IRA Owners

By May 31 each year, IRA trustees and custodians are required to send IRS Form 5498, IRA Contribution Information, to both IRA owners and the IRS. As its name suggests, this form contains important information about IRA contributions and valuations. When you get this form, review it carefully to ensure it reflects your IRA activity for the past tax year. This form contains vital information about your IRA activity; understanding its contents is essential for effectively managing your retirement savings. The IRS will cross-reference the data on Form 5498 with the information you provided on your tax return— therefore, it’s essential to notify your financial institution promptly of any errors requiring correction. Below, we outline key insights into Form 5498.

 

What Information Does Form 5498 Contain?

In addition to annual contributions made to Traditional and Roth IRAs, Form 5498 also reports:

  • Rollover contributions
  • SEP plan employer contributions
  • SIMPLE IRA plan employee and employer contributions
  • Recharacterized IRA contributions
  • Roth IRA conversion contributions
  • The fair market value (FMV) of the IRA as of December 31 of the prior year
  • The value of certain types of alternative investments held within the IRA
  • Whether a required minimum distribution is due for the year (the dollar amount may be included)
  • Repayments you have made of any qualified reservist distributions, qualified disaster distributions, coronavirus-related distributions, and qualified childbirth and adoption distributions

 

When Do I Receive Form 5498?

Form 5498 typically arrives after your tax filing deadline, which may seem unusual at first. However, since IRA owners can make “carryback contributions” for the previous tax year until their filing deadline, financial organizations need time to process these contributions accurately. Thus, the IRS May 31 deadline for sending out Form 5498 allows adequate time for institutions to report these contributions.

STRATA will file Form 5498 with the IRS and make a copy of your form available to you (either online or paper, based on your communication preference, on or before May 31).

 

What Specific FMV Information Does Form 5498 Provide?

For most banks and credit unions, the FMV of an IRA is easy to determine; it is simply the amount on deposit (typically in cash). This amount, along with any contributions and distributions (reported on IRS Form 1099-R), will show the growth of the IRA from year to year. It will also be used to calculate the amount of any RMDs. For IRA owners with alternative investments in their self-directed IRAs, the FMV can be harder to determine. But financial organizations must still provide an accurate figure. This is one reason STRATA requires the FMV update for alternative investments by April 30 each year. This enables us to follow up (if needed) and then report this information on Form 5498 by the IRS filing deadline of May 31.

Box 15a of Form 5498 lists the FMV of certain assets while box 15b lists the codes for specific alternative assets, such as closely held stock, real estate, ownership in a limited liability company, or any “other asset that does not have a readily available FMV.” This relatively recent addition to Form 5498 shows the importance that the IRS places on obtaining accurate valuations—even for hard-to-value IRA assets.

 

Rollover Reminders

Rollovers can sometimes present challenges for IRA owners. If you rolled over IRA assets in 2023, you won’t receive a Form 5498 showing the rollover until May 2024—meaning you (or your tax preparer) will have to account for the rollover on your tax return before you obtain the documentation that verifies the rollover. The challenge is even greater if your rollover spans two tax years.

Example

You take an IRA distribution in December 2023 and make the rollover contribution in February 2024 (within the 60 days allowed). This contribution will not be reported to you and the IRS on Form 5498 until May 31, 2025. To avoid taxation on the 2023 distribution, you must properly report the rollover on your federal income tax return, even though the information will not be reported to the IRS until much later.

Because of the important tax consequences, you want to make sure that you properly report rollover transactions—even when you don’t yet have all the needed documentation to support your transaction.

 

STRATA Can Help

Understanding IRS Form 5498 empowers IRA owners to manage their retirement savings effectively and ensure compliance with tax regulations. By reviewing this form carefully and seeking assistance from a qualified tax or accounting professional as needed, you can navigate the complexities of IRA reporting with confidence.

For IRA owners navigating self-directed investments, STRATA offers expert assistance. Whether you have questions about Form 5498 or need guidance on managing your self-directed IRA, our team is here to help. Explore our Self-Directed IRA Knowledge Center for additional resources and insights.

 

Tags: IRA, ira contributions, IRA tax laws, IRS Reporting, taxation