If you have an IRA (individual retirement arrangement), there’s an IRS tax form that you should be aware of. It’s called IRS Form 5498—IRA Contribution Information.
In short, Form 5498 outlines any transaction in which money transferred into an IRA for the previous year. It’s issued by your broker or financial institution overseeing your IRA.
This article will go over IRS Form 5498 so you can better understand it. More importantly, we’ll discuss a very important tax planning opportunity that you can discover using this form.
What is Form 5498?
According to the IRS website, Form 5498 is an IRA contribution information form. It is used to “report contributions, including any catch-up contributions, required minimum distributions (RMDs), and the fair market value (FMV) of the account.”
Let’s look at this in a little more detail.
Type of IRA
- Traditional IRAs
- Roth IRAs
- SIMPLE IRAs
- SEP IRAs
- Inherited IRAs
Contributions to an IRA
IRS Form 5498 is used to report any money or assets transferred into an IRA. This includes:
- Contributions (both deductible and nondeductible)
- Catchup contributions
- Rollovers into the IRA
- Recharacterizations. This includes recharacterizations of Roth contributions to a traditional IRA because the taxpayer exceeded the income and contribution limits.
Form 5498 also includes additional information used to calculate RMDs. This includes:
- RMD Date
- Year End Account Balance
Finally, IRS Form 5498 also contains informational fields for other IRA-related items. This might include things like:
- Estimated fair market value of illiquid assets, such as real estate or closely held stock
- Reason codes for late contributions, such as qualified disaster areas or duty in qualified combat zones
- Repayment of a qualified reservist distribution
Variations of Form 5498
Form 5498 is used to report IRA transactions. However, other versions of the form are used to report similar transactions in other tax-advantaged accounts. These include:
- Form 5498-QA: Used to report contributions to a qualified ABLE (Achieving a Better Life Experience) account. ABLE accounts are tax-advantaged savings programs for qualified people with disabilities.
- Form 5498-ESA: Used to report contributions to a Coverdell Education Savings Account (ESA)
- Form 5498-SA: Used to report contributions to one of the following:
- Health Savings Accounts (HSA)
- Archer Medical Savings Accounts (MSA)
- Medicare Advantage MSA
Form 5498 is issued by the financial institution responsible for the IRA for informational purposes. However, the taxpayer is most likely to get any substantial benefit from Form 5498.
Who Receives Form 5498
There are three copies of each Form 5498 that is issued. They contain identical information and they each go to different parties:
Copy A: Copy A goes to the Internal Revenue Service.
Copy B: Copy B goes to the taxpayer. This is the copy you should expect to receive from your IRA trustee or IRA custodian.
Copy C: Copy C is retained by the IRA custodian.
How To Read Form 5498
Form 5498 contains a lot of information. Let’s take a look at the form, and we’ll go through each of the sections.
On the left, you’ll see basic information, such as name, address, and TIN. TIN stands for taxpayer identification number. For individuals, it is the same as your Social Security Number.
On the right are boxes 1-15. These contain most of the important information, and we’ll go through them in order.
Box 1-IRA contributions: Shows total IRA contributions for the tax year. Does not include amounts in boxes 2-4, 8-10, 13a, or 14a. Also does not indicate whether or not you can take a tax deduction for these contributions.
Box 2: Rollover contributions: Shows the rollover amounts from another tax-advantaged account. This could include:
- 60 day IRA rollovers
- Direct transfer or indirect rollovers from qualified plans, like a 401k or 403b
- Qualified rollovers into a Roth IRA (but not Roth conversions, which are reported in Box 3)
- Military death gratuity
- Servicemember’s Group Life Insurance (SGLI) proceeds
Box 3: Roth IRA conversion amount: Shows the amount converted to a Roth IRA. This conversion amount could be from a traditional IRA, SEP IRA, or SIMPLE IRA.
Box 4: Recharacterized contributions: The amount of contributions (plus accumulated earnings) that were recharacterized from a different account.
Box 5: FMV (fair market value) of account: This is the account balance as of December 31 of the tax year reported. This information is required to calculate RMDs.
Box 6: Life insurance cost: Used to report the cost of life insurance in the case of endowment contracts.
Box 8: SEP contributions: Includes employer contributions to a SEP IRA for the tax year reported.
- Does not include employee contributions, which are reported in Box 1
- Does include contributions by a self-employed individual
- Includes contributions in the reported tax year for the previous tax year. For example, a 2022 Form 5498 would include 2021 contributions that were made in calendar year 2022. But it would not include 2022 contributions made in 2023. These contributions would be reported in 2023 because they are for the prior tax year.
Box 9: SIMPLE contributions: Includes employer contributions to the plan. Also includes contributions in the reported tax year that were made for the previous tax year.
Box 11: If checked, must take RMD for the subsequent tax year. For example, if Box 11 is checked on the 2022 Form 5498, this indicates the taxpayer must take an RMD for 2023.
Box 12: RMD: Consists of 2 blocks: Date and amount. If required, the IRA trustee will report the RMD date in Box 12a and RMD amount in Box 12b.
Box 13: Postponed contribution. Usually blank. Consists of 3 blocks-Dollar amount, year, and reason code. If required, the IRA trustee will report the postponed contribution amount in Box 13a, year in Box 13b, and reason code in Box 13c. Reason codes include:
- Active duty service in a qualified combat zone
- ‘Affected taxpayers’ as designated in an IRS News Release regarding federally declared disaster areas
- Rollovers of a qualified plan offset amount
- Late contributions due to circumstances outlined in Section 3.02(2) of Rev. Proc. 2020-46
Box 14: Repayments. Consists of 2 blocks-Dollar amount and reason code. If required, the IRA trustee will report the repayment amount in Box 14a and reason code in Box 14b. Reason codes include:
- Qualified reservist distribution
- Qualified disaster distribution
- Qualified birth or adoption distribution
Box 15: FMV: Fair market value of certain assets. Consists of 2 blocks-Dollar amount and reason code. If required, the IRA trustee will report the FMV amount in Box 15a and reason code in Box 15b.Reason codes include illiquid assets such as real estate, closely held company stock, or partnership interests. A full list of reason codes is contained in IRS Instructions for Forms 1099 and 5498.
Form 5498 Filing Requirements
This isn’t a form that’s required for your income tax return. In fact, many Form 5498s are issued after the tax deadline in a given year.
According to IRS Publication 1220, the IRS deadline for Form 5498 is May 31 of the following year. For example, for tax year 2021, the due date is May 31, 2022.
However, there are different requirements for taxpayer notification. This includes:
- January 31: FMV/RMD
- April 30: Form 5498-ESA
If the due date falls upon a weekend or federal holiday, then it is considered on time if filed the next business day.
Let’s discuss what the hidden tax opportunity is.
The Hidden Tax Planning Opportunity-Roth Conversions
As previously mentioned, Form 5498 is issued by the financial institution responsible for your IRA. It is issued for any year in which money or securities were transferred into that account. This could include (but is not limited to):
- IRA contributions (including SEP, SIMPLE, or Roth IRA contributions)
- Roth conversions
An account holder will receive a Form 5498 for each account. So, if you make a non-deductible contribution to your traditional IRA, then do a backdoor Roth conversion, you would receive a Form 5498 for both your traditional IRA as well as your Roth IRA.
In addition, you would receive a Form 1099-R since money left your traditional IRA.
What does this mean?
For most people, it probably doesn’t mean much. This simply is an acknowledgement of the money you contributed to your IRA in a given year.
For IRA owners who are eligible to directly contribute to a Roth IRA, or to fully deduct traditional IRA contributions on their tax return, this form won’t mean much.
However, there is a situation where this will come in handy. That is when your traditional IRA ends up having a combination of deductible (pre-tax) & non-deductible (after-tax) contributions.
Here are two common scenarios, where this might occur:
Scenario 1: At the beginning of your career, you start off in a lower tax bracket. You contribute directly to a traditional IRA while contributing to your workplace retirement plan. That way, you maximize your retirement savings.
Over time, you creep into the income phase out limits for being able to deduct your IRA contributions on your tax return. Your IRA now has a combination of pre-tax and after-tax contributions.
Scenario 2: You’ve been making non-deductible IRA contributions for a while. But you never converted them to a Roth IRA. You change jobs.
As part of this change, you change your 401k participation. To simplify your finances, you rollover your previous 401k into your traditional IRA. You now have a combination of pre-tax contributions & after-tax contributions.
How do I figure out which contributions were pre-tax and which ones were after-tax?
Ideally, you would use Form 8606-Nondeductible IRAs, to help keep track of your after tax contributions. But many people don’t file Form 8606 each year. Or at all.
This happens for many reasons:
- They don’t know they’re supposed to.
- They don’t tell their accountant about the IRA contribution.
- Their tax preparation software doesn’t properly prompt them to do so.
Fortunately, you can use your Form 5498, in conjunction with each year’s tax returns to figure this out.
To do this, you compare Block 1 (IRA contributions other than amounts in boxes 2-4, 8-10, 13a, and 14a) to the ‘IRA deduction’ line on your tax return.
Based upon year, you’ll find this line item as follows:
- 2021: Schedule 1, Line 20
- 2019 & 2020: Schedule 1, Line 19
- 2018: Schedule 1, Line 32
- 2017 & prior year returns: 1040, Line 32
One of three things will happen:
- The number in Block 1 equals the respective number on your tax return. This means that your IRA contribution was fully deducted for that year, and is considered a pre-tax contribution.
- There is no number for IRA deduction on your tax return, but there is a number in Block 1 of your 5498. This means that your IRA contribution was not deducted at all that year, and is considered an after-tax contribution.
- There are numbers in both forms, but they’re different. This means that your IRA contribution was partially deducted in that year. The difference between the two numbers is the amount of your after-tax contributions.
This usually happens when you’re in the phase-out of your IRA contribution deduction eligibility.
For example, in 2021, a single tax filer (participating in an employer-sponsored retirement plan) could:
- Fully deduct their IRA contribution if their modified adjusted gross income (AGI) is $66,000 or less,
- Not deduct their IRA contribution at all if their modified AGI was $76,000 or more, or
- Partially deduct their IRA contribution if their modified AGI was between $66,000 and $76,000. This is known as a phase-out.
You’ll need to calculate this amount for each year that you contributed to an IRA. The total number is the total of your after-tax contributions.
What is the tax planning opportunity?
If you are doing Roth conversions, you might be able to do so without paying federal income taxes on your after-tax IRA contributions.
In fact, if you keep track of how much your pre-tax contributions actually were, your tax professional can account for this in your tax returns. That will keep your tax bill low as you do those Roth conversions.
There are even situations in which you may be able to convert only the after-tax contributions, while keeping your pre-tax contributions in a pre-tax account.
Converting only the after-tax contributions would allow you to avoid paying taxes on any pre-tax contributions. How to do this properly would require extensive tax advice, which is beyond the scope of this article.
What’s important is that you know how much of your IRA is from pre-tax contributions. This will allow you to create your Roth conversion strategy.
Does my accountant need Form 5498?
Most likely, not. Form 5498 is an informational form and not required to file a tax return.
If you do Roth conversions, you may need your Form 5498s, as well as your old tax returns. That will help your your tax preparer properly calculate your tax liability.
More importantly is that you have this documentation in the case you are audited. Talking with an auditor when you have all the facts in hand is a much different story than when you ‘think’ you know the numbers. Having your Form 5498s and tax returns allows you to avoid tap-dancing in front of the examiner.
What you must do before starting your conversions
The most important thing that you do is to discuss the strategy with your accountant before you start doing conversions. You want to achieve 3 things:
- Your accountant knows of your strategy and agrees with it. By preparing your tax return, they’re going to be telling the story after the fact. So it’s worth making sure they’re onboard with the big picture before moving forward. And if not, then it’s worth taking the time to learn what adjustments you need to make so they’re onboard.
- You’ve reviewed that year’s plan as part of your tax planning. This is a little different.
- You’re comfortable with the actual mechanics. This means that if you need to open a Roth IRA, then you actually open the Roth IRA. Likely, your accountant will be in a situation to advise on what you should be doing, but might not be in control of the actual transactions. That falls to you or your investment advisor (if you have one). If you’re working with an investment advisor, then your accountant and investment advisor should be on the same page in terms of what needs to be done and when.
What if I can’t find my Form 5498s?
Contact your financial institution or your financial advisor. You should be able to have them send you copies for each year that you deposited funds into an IRA they manage. This is the preferred approach.
If you have changed custodians over the years, or have many years of IRA contributions, this might be difficult. However, if you keep paper (or electronic copies) of your statements, you should be able to document when deposited funds reached your IRA.
This might not be the preferred approach, but it could allow you to explain the history of deposits to your examiner.
In either case, you should discuss what documentation you do have with your accountant or tax advisor, so they can decide how to proceed.
More important are the tax returns for each year. They contain the information telling you how much of your contributions were deducted (pre-tax), and how much were never deducted (after-tax).
IRS Form 5498 is a year-end statement you should pay close attention to if you’re developing a Roth conversion strategy.
If you’ve ever made after-tax contributions to your IRA over the years, it’s important to account for them as you implement your Roth conversion strategy. Not doing this literally leaves tax savings on the table—money that should be working to support you in your retirement years.