Tax Form 5498 Due in Mailboxes Any Day

In Mid May of each year we begin receiving tax form 5498 and this often times causes confusion. Do not let it, it is a simple form with the purpose of settling up IRA/401k/retirement transfer amounts and establishing an end of the year balance.

Form 5498 is a lagging time form. What we mean by this is when there is a transaction concerning qualified (IRA, 401k Rollover ect) types of transactions a form 5498 is generated. The main reason this form is generated is to confirm to the IRS that individual investors have rolled funds over into another instrument and NOT taken a distribution. Form 5498 proves to the IRS that investors did indeed either rollover, contribute, or make some type of transaction during the latest tax year.

The most confusing part of this form is it’s time frame. The IRS asks this form be mailed in May, well after the April 15th filing deadline. Do not worry, the lag is for the IRS’s benefit and allows them to easily reconcile their records with individual tax reporting requirements. Let’s go through a short example.

An investor rolls his or her 401k into a self directed IRA on August of year A. That investor shows a distribution on his or her tax return for year A but because these funds were rolled over, no taxes are due,  in April of year B.  The receiving institution then reports to the IRS in May of year B the receipt of this rollover, allowing the IRS to confirm that in fact the investor did rollover the funds and did not take a distribution. 

It’s that simple, do not let this form confuse you as this form is a lagging tax reconciliation form used by the IRS.  JK

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