IRS FORM 5498

IRS FORM 5498

What is it?

The IRS form 5498 is a tax form used for reporting contributions to Individual Retirement Accounts (IRA). A standard Form 5498 is designated for traditional IRAs, Simplified Employee Pension (SEP), Savings Incentive Match Plan (SIMPLE), and ROTH IRAs. Health Savings Accounts (HSA) are covered under the Form 5498-SA.

What is it used for?

It provides a record to IRA participants to verify against their own financial records and reporting on their IRS 1040 tax form. The 5498 should be accompanied by a history statement with transaction details. Form 5498 information is used by the IRA Trustee to electronically report IRA participant contributions to the IRS. Tracking is also kept for rollover activity, Fair Market Value (FMV), and Required Minimum Distribution (RMD) for the new tax year. Less frequently used items are also reported, such as designated repayments, postponed contributions, and special types of investments.

What is the timetable?

Form 5498 is due to both the IRA participant and the IRS by May 31st. Generally, most computer systems require an accounting cutoff to occur at the same time the cutoff of contributions occur. The last contribution to a prior year IRA is on the tax due date –April 15. That cutoff usually applies to the financial institution whether they are sending forms directly to the IRA participant or using a third party to do the reporting.

Who is involved and what are the responsibilities?

IRA TRUSTEE

This is generally a bank, broker, or other fiduciary responsible for holding the IRA.

Since an IRA is a type of trust, it follows that the trustee must hold and administer the trust. The duties include notifying the participant of tax information on both contributions and distributions through appropriate tax forms. The trustee keeps an accurate record of the transactions and balances of the IRA account. It will govern contributions and distributions based on IRS age and amount restrictions.  The trustee is also responsible for providing an annual RMD, when appropriate, and a FMV of the IRA balance. Finally, the trustee should follow the beneficiary (and/or participant) instructions for distributions and contributions.

IRA PARTICIPANT

This is an individual who has invested in an IRA to provide for their post-earning years.

The participant holds two positions in the IRA trust. First they are the trustor (grantor) who created the trust. Second, the participant is the primary beneficiary of the trust funds. The participant will designate other beneficiaries to the IRA trust if he or she outlives the IRA trust. Any individual tax filing (Form 1040 and associated forms) is the responsibility of the participant and not the trustee.

Using a technology system to deliver forms to participants and the IRS

The trustee should always verify with their technology provider on requisites in completing the 5498 process. These would involve meeting the timetables, creation of forms by the system, sending the files to the IRS, and any internal functions that maintain the system. The latter could involve resetting IRA balances and dates for the new tax year. Consider the effects of those resets, whether they are directly using the system to send reporting to the IRS or if they are using the system to send updated IRA participant information to a third party provider.

Author is not a tax advisor, so consequently does not assume any liability for perceived tax advisory information.

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Jim McClintick
Jim McClintick

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