The Wonderful, Magical Form 5498
In a scene from “The Simpsons,” daughter Lisa announces she has become a vegetarian. Homer asks some probing questions. “Are you saying you’re never going to eat any animal again? What about bacon? Ham? Pork chops?” When Lisa says that all those come from the same animal, an incredulous Homer responds, “Yeah, right—a wonderful, magical animal.”
IRS Form 5498 is the bacon, pork chops and spiral ham of tax forms. An enormous amount of information is contained in this document, yet a taxpayer doesn’t even file it with his taxes. In fact, Form 5498 is so unique that the official deadline for its release by custodians is not until late May, well after the tax filing deadline. However, once received by the taxpayer and the IRS, Form 5498 can help answer tax questions for decades into the future. What are these magical qualities of Form 5498? What information does it contain that can be so useful over a lifetime? Here are just a few details:
Box 1 – IRA contributions
This box includes traditional IRA contributions for the previous year (the year listed on the form). Since Form 5498 may not be released until late spring, it will also include contributions made earlier that same calendar year for the previous year. It does not delineate if those contributions were deductible or not – only that they were made.
Box 2 – Rollovers
This shows proof that a distribution from an IRA or qualified plan was rolled over in the previous calendar year. The IRS will receive Form1099-R showing the distribution. Box 2 on Form 5498 is evidence that the distribution was, in fact, rolled over.
Box 3 – Roth conversions
“How do I track the 5-year clock on a Roth conversion?” See Form 5498. A Roth conversion is essentially time-stamped January 1 for the year listed on the form.
Box 10 – Roth IRA contributions
Roth contributions are also time stamped on Form 5498. There is no place on Form 1040 to report a Roth contribution. So how does the IRS know when a person opened his very first Roth IRA and started his 5-year clock? Form 5498.
Box 11 (checkbox); Box 12b – RMD Amount
Box 11 is checked to notify an account owner that he must take a required minimum distribution (RMD) for the current year (the year in which Form 5498 is issued). The amount of the RMD can be provided in Box 12b.
Box 15a – Fair Market Value (FMV) of certain specified assets
You can hold some unique and unconventional assets in an IRA. The annual valuation of such items is reported by the custodian in Box 15a. Sometimes the task of placing a value on quirky investments falls to the IRA owner, so be careful with certain holdings.
Box 15b – Codes(s)
If you do hold hard-to-value assets in your IRA, the IRS will be curious as to what those investments are. Box 15b codes these items. For example, Code A is for “Stock or other ownership interest in a corporation that is not readily tradable on an established securities market.” Code C is for an ownership interest in an LLC, and Code D is for real estate.
Form 5498 contains a bevy of valuable information that can be used for decades. For those looking for documented proof of a particular transaction, IRS Form 5498 could be that needle in the haystack. A wonderful, magical needle of information.
By Andy Ives, CFP®, AIF®
IRA Analyst
Ed Slott and Company, LLC
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