What Is IRS Form 5498? (Beginner Guide)

If you are saving for retirement via an individual retirement arrangement, the financial institution and the IRS require you to fill the form 5498 each year. The financial institution acts as a custodian or a trustee in the entire procedure.

The form contains information about retirement contributions. It also reports the amount that you transfer from any other retirement account. Whatever amount you claim for the deduction in IRA has to be reported in Form 5498 as well.

The form 5498 IRA represents the fair market value of your investments in your retirement account. If the person is 72 or older, he/she must take the required minimum distributions (RMD) every year.

The RMD is dependent on the age of the person and on the fair market value of the account on December 31 of the previous year. For instance, to determine the RMD for the year 2022, the account’s fair market value on December 31, 2021, is checked.

To make the process of RMDs easy, the form should be furnished on dates like January 31, showing the account’s value as of December 31. Form 5498 does not report the trustee-to-trustee transfers, also called direct transfers. So, it makes this clear that you can make as many transfers as you want.

What is the purpose of IRS Form 5498?

The IRS Form 5498 is used for reporting the annual contributions to an IRA account and identifies the retirement account type you have.

These accounts are named Roth IRA, SEP-IRA, SIMPLE IRA or it can be the traditional IRA. It is also used to report the amounts you transfer from any other retirement account to the IRA. When you claim a deduction for your IRA contributions, the amounts must also be referenced in the form.

How the IRS Form 5498 works

 The IRS Form 5498 depicts the fair market value of all the investments in your IRA account. IRS tells you the account where you need to begin withdrawing money.

It requires you to begin it from the account you turn 72 (calendar year). This is the case when your IRA account is not the IRA Roth. When the custodian prepares the form, he must report these required withdrawals.

 There is also a penalization if you fail to withdraw the required fund to fulfill your subject distributions. In such a case, the IRS may penalize you with 50% of the amount you were subjected to for distributions. The required percentage of withdrawal amounts increase with the age of the person.

Time duration

The custodian usually distributes 5498s before May 31 of each calendar year. The form is distributed to the participants and the IRS after six weeks from the income tax filing deadline which is normally April 15. This procedure helps in reporting accurate information about the contributions on the form.

Similar Forms

You may also get a similar form. This similar form is 5498-SA if your account is for health savings called HAS. This form also reports your annual contributions to the tax-free accounts that you use to pay your medical expenses. Contributions to similar forms grant the form 5498-SA as well, which should be mailed to the IRS and the participants.

The deadline, in this case, is also May 31.

Form 1099-R

Your plan custodian can send you this form named 1099-R. It is received if you have taken a distribution of more than 10 dollars from your IRA account during the year.

This form reports three major categories. One, how much you withdrew. Second, how much was the taxable distribution? Third, how much was withheld for state or federal taxes. 

How to read form 5498

Form 5498 is comprehensive, involving all the necessary details. It includes the information of both the owner and the trustee participant.

The information includes the name, address, and federal identification number of both parties. Box 7 indicates the type of IRA account you have by checking the appropriate type.

Box 1 contains all types of contributions from all the IRAs. Furthermore, some contributions are separately mentioned.

These are Roth IRA which is broken out in Box 10, SEP IRAs which is broken out in Box 8, and SIMPLE IRAS which is broken out in Box 9. Moreover, Box 2 contains the rollover contributions. For 12 months (1 year), only 1 rollover contribution is permitted.

If a taxpayer claims a deduction more than what he has reported in his Form 5498 then a discrepancy letter is sent to the person.

The letter asks for the underpayment’s additional taxes, penalties, and interests. This results from the reduction in excess of the amount reported in the form.

Box 5 contains the amount of Required Minimum Distribution for the current year.  The form also reports the amount of RMDs required after undertaking certain calculations.

Roth IRA

Roth IRA is a special arrangement for retirement planning. In this plan, tax is deducted while making payments in the plan. However, all withdrawals in the future are free from taxes. It’s an excellent option for the taxpayers who are expected to pay taxes at higher rates at retirement age.

Another benefit of the Roth IRA is that it enables you to withdraw contributions without tax or penalty. However, it’s not applicable to withdraw the income earned by the fund. So, if you are thinking of covert your normal IRA to Roth IRA, it can be done as follows.

 Roth IRA Conversions

 Box 3 is used for reporting the conversions to Roth IRAs. The amount is not limited to the amount that can be contributed annually to the IRA.

You can instruct the trustee of the institution who holds your IRA to transfer your contributions, including the earnings, to a different type of IRA. You can use the same trustee or a newer one for this purpose. Box 4 of Form 5498 contains the contributions that are recharacterized.

Final Words

The Form 5498 IRA represents all your contributions made to the IRA account. It also reports the Required Minimum Distributions required each year.

The form is given to you by a financial institution that acts as a trustee or custodian and the Internal Revenue Service (IRS). And the form is given to you yearly only if you have an Individual Retirement Account (IRA). The form contains several boxes to teach all the necessary details.

You may also receive a similar form if you have invested in a health savings account. This form is 5498-SA and requires reporting on the contribution made in a retirement plan for the health. Further, you must file a 1099 form if you have received more than $10 from your retirement plan.

It’s equally important to note that there is a Roth IRA account. In this type of retirement account, you must pay taxes while making payments in the plan.

However, all the withdrawals in the future would stand free from tax. Further, you can also withdraw your contribution from this plan without incurring any tax impact or penalty.

Frequently asked questions

 Who should opt for the Roth IRA?

If you expect that at the age of retirement, you will be required to pay tax at a higher rate, it will be an excellent planning move to invest in the Roth IRA account. It’s because all withdrawals made from the Roth IRA are tax-free.

What’s the tax rate for the traditional IRA account?

The tax rate in the traditional IRA is the same as a tax on ordinary income. However, if you want to save tax on withdrawals, it’s appropriate to invest in Roth IRA.

What’s the difference between IRA and 401k?

The main difference between IRA and 401K is that an individual manages IRA. On the other hand, 401K is an employer-managed plan with set rules.