One of the most overlooked tax forms is the 5498. This is mostly because you do not really need to have the copy right away to do your taxes, but obtaining a copy post tax deadline can be a really good idea.
The form is one of my favorites because of how useful the information reported can be for your records. In particular, with tracking your contributions to avoid being taxed multiple times on the same money, and to make sure you take full advantage of tax free withdrawals.
Rollover Contributions
Whenever you have done a rollover from one financial company to another, you will have a 5498 form. The form will have your account number and the dollar amount received as a rollover.
You have another tax form called a 1099-R form you receive from the institution from which your rollover money was distributed.
Conversions to Roth
If you move money from a pre-tax IRA into a Roth IRA, then you will see a dollar amount in the roth conversion field of your 5498 form. Roth conversions grow tax free but have a five year aging period.
The 5498 form will show the Roth account number, the year, and the dollar amount of your conversion which is great for your records.
Annual IRA Contributions
Non-Deductible Basis Tracking
IRA contributions are not always deductible against your income. If you are not eligible for a deduction, then you will have a non taxable basis in the IRA.
Unless you have kept records of your accumulated basis in an IRA, or work with a fiduciary that does this on your behalf, then the IRS will assume 100% of future distributions are taxable. You will have to reconcile the taxable amount vs non-taxable amount on tax form 8606.
In combination with your tax records, the 5498 form will make this process easier. You should mark the 5498 forms as non-deductible for your own records.
Initial Start Date for Roth Accounts
Similarly to tracking the aging period for Roth conversions, you have to keep track of the starting point of your first Roth IRA contribution.
Rather than looking through past account statements, an annual tax form 5498 will help keep everything more organized and simplified with account numbers.
Used to Calculate RMDs
Required minimum distributions are calculated using the end of the year market value of your Pre-Tax IRA.
The tax form 5498 will have an official number for the end of the year balance. You could use the year end statement balance carefully as well.
Recharacterized Contributions
A recharacterization can be used to correct an pre-tax contribution to a Roth, a Roth contribution to a non-deductible contributions will add complexity to your tax return because you either are making a correction from Roth to Non-Deductible, or changing to pre-tax from Roth, or some other switch between IRA types.
Over contributions to the wrong IRA can result in penalties, so having your tax form 5498 available for your records is important for years you have recharacterized.
As a fiduciary with years of retirement planning experience, Bulldog Financial Planning can help you organize your accounts, track your accumulated basis in IRAs, help you determine eligibility for contributions, and estimate the tax implications of your decisions both now and in the future without the assets under management or transfer of assets requirement. The specifics will be built into your individualized financial plans and investment strategies.
(Future taxes are based on estimates and subject to change because of regulatory/tax law changes and investment results cannot be guaranteed)
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