In the US, many people invest in their further retirement themselves and use an Individual Retirement Account (IRA) for that purpose. The income that is submitted to the IRA as part of your retirement plan is still subject to a declaration with the US Internal Revenue Service, as the IRS provides for tax benefits for all the retirement savings. US citizens can use a separate legal form to declare their IRA income, which is officially called Form 5498 or the IRA Contributions Information report. You, as a taxpayer, do not have to fill out the form; your assigned IRA trustee shall do that for you, and that is the official IRS requirement. The designated person must fill out and file the form to the respective office by May 31 of each financial year. Below, we will tell you some more about the legal peculiarities of compiling and filling out the given paper.
So, if you are a participant in any federal retirement plan and have savings at the IRA, you receive the 5498 Form annually. There are various programs and institutions that manage the retirement process and payment in the US. Each of them is responsible for issuing these forms to respective program members in time. Besides, this particular institution shall report all the existing contributions having a valid-to-date account to the Revenue Service on their tax situation.
Plus, there are different IRA types, and, depending on the type you currently have, you may or may not need to file Form 5498 to report your retirement plan contributions and the respective tax deductions on your tax return annual report. Normally, you only get a copy of the form via mail and keep it for further record until required. Thus, the official copy you might find and get acquainted with on the official IRS website is only meant for your information, as solely specific specialists must fill out this form. Keep reading our brief review to find out more.
The form covers a lot of legal terms and aspects of the socio-economic life that are sometimes unclear to philistines, and that is exactly why only specialists are entitled to work with these documents and fill them out. Mistakes in this type of accounting form can lead to some serious legal consequences. So, the main terms you will have to face and understand when filing the 5498 Form are as follows:
It surely seems very complicated, but not to a person who works with these forms for a living, so make sure you assign a qualified trustee to manage your IRA business.
As a matter of fact, direct transfers from one account to another and assets conversion are usually exempt from reporting with this respective form, so keep that in mind when filling out the form.
Typically, people making contributions to the IRA have the right to make tax-free retirement contributions to their individual accounts, but you need to be eligible to acquire that right. Check the IRA official website to find if you qualify, and if so, keep reading further for more info on filing procedures and legal peculiarities.
Once you begin to withdraw from your IRA, the retirement accumulations become tax-deductible (usually, this time comes when you turn 72 years). As soon as you start to withdraw your savings to cover your living needs after you retire from your job, these amounts become your income, and you need to report it to the IRS as tax returns.
Please note that if you and your spouse participate in different retirement plans and are making your contributions to different institutions, you will most likely not be eligible to use the full contribution tax deduction.
In plain words, Roth IRA (named after a Senator from Delaware W. Roth) is a retirement account that is similar to the traditional one but with more tax benefits. You also need to qualify to be able to save in Roth IRA and enjoy the tax-free withdrawals.
If you qualify and are contributing to a Roth IRA, you should know that you are accumulating your retirement savings in the so-called after-tax dollars, which, in turn, means that all your contributions are not tax-deductible. As a result, once you start to withdraw your saving from the IRA, your income will be absolutely tax-free. It is the primary difference between the Roth IRAs and traditional once funded with pre-tax US dollars. In this case, you only need to file Form 5498 if your respective income is below the set rate.
While still being employed, you can participate in either the SIMPLE IRA program or the SEP program. In the first case, your employer will be withholding retirement account contributions from your monthly salary; thus, the income tax deduction will only be made after your employer makes the contribution to the IRA.
If you choose to participate in a SEP program instead, then your employer will be responsible for making contributions to your IRA account on your behalf (and not from your salary directly). This effectively means that the savings amounts reflected in the 5498 Form you will get from the responsible institution will not be deductible.
Your assigned trustee shall obtain the relevant Form template first. Usually, the responsible institution obtains the form template from the IRS directly and then sends one respective copy to the IRA participant for further record. As we have already mentioned above, the form template available on the IRS official website is only designed for information purposes (provided in red color).
Below, we have compiled a comprehensive guide on filling out the form. Ensure to follow it step by step to avoid any misunderstandings and to calculate the respective amounts accurately.
Read the Instructions for the Trustee
There are short instructions for the trustee provided at the end of the form. We strongly advise you to read these instructions before you proceed to fill out the form.
Check if the Form is Void or Corrected
As we have mentioned above, Copy A is only meant for the specialists to fill out and appears on the official website in red ink. Other copies are for the participant’s record. If you notice any mistakes in the official form, you can make corrections or ask the trustee to make amends. For either of these cases, check the “Void” or “Corrected” box at the top of the form.
Enter the Trustee’s Personal Data
Enter the full legal name and physical (current mailing) address of the person issuing the record. The trustee acting on behalf of the participant must provide accurate contact info, including the state, city, ZIP (of FPO), street, building, and apartment number.
Provide the TIN of the Participant and the Trustee
In the following two boxes, you must enter the TIN of both the form issuer and the retirement program participant.
Insert the Participant’s Name
Here, the issuer must insert the full legal name of the retirement program participant (the one that makes contributions to the IRA).
Provide the Participant’s Physical Address
Insert the physical address of the respected participant as it is shown in the example.
Enter the Account Number
Here, the issuer must provide the IRA details, specifically the account number, but there are certain peculiarities. Please refer to the instructions for more details, as it is indicated in the form.
Insert All the IRA Contributions
The form then follows to define the precise contribution numbers, and that is where you have to be very careful and accurate. In box 2, you should indicate the revolver contribution amount; in box 3, indicate the Roth IRA conversion amount; in box 4, provide all recharacterized amounts (if applicable). Leave all other contributions made for box 1.
Enter the FMV and Life Insurance Cost
Let the issuer define the FMV of the respective IRA and designate the life insurance costs (usually, the latter are included in box 1 with the other contributions amounts).
Provide the Retirement Plan Data
Indicate the type of the participant’s retirement program. Check the corresponding box to do so. Next up, insert the accurate contribution amount in US dollars depending on the program type you have chosen above. Also, ensure to indicate if the participant is RMD for the upcoming (2022) financial year.
Insert the RMD Info
If you have checked box 11, then you need to enter the RMD date in box 12a and then the RMD amount in US dollars in box 12b.
Indicate Postponed Contributions
If the participant has made and late or postponed contributions during the current accounting period, the issuer must indicate this info in the form. Provide the delayed contribution amount in US dollars, the year, and the transaction code.
Designate Repayments and Codes
In the last couple of boxes, the issuer must indicate the number of repayments (if any), FMV of assets specified in the instructions, and their respective transaction codes in the corresponding blank lines.
The IRS provides comprehensive revised instructions on how to fill out the 5498 Form and the 1099-R form (as those two overlap). Again, the instruction is quite lengthy and complicated as it is meant for the specialists to operate. But if you are new to the business and want a better understanding of IRA accounting, you shall take your time and get acquainted with the full instructions on the IRS official website.