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What does IRS Form 5498 Mean and What Is It Used For?

When is a form 5498 issued?

Form 5498’s have been sent out and you more than likely received them in early June. The IRS requires that the Form 5498 is sent out by the Custodian no later than May 31st. In many cases, it will be sent out earlier, but May 31st is the deadline.

Note: You do not need this form to complete or file your taxes in April. In fact, it is sent out in May because all IRA account holders have the ability to contribute to their IRA for the prior year until April 15th.

Video Highlights

[0:08] This form is essential for your Roth IRA tax information!

[0:57] When do the changes in form 5498 take effect?

[1:31] What is the purpose of form 5498?

[1:54] Here’s a look at the form 5498 and the assets that you’ll need to report.

[2:21] A step-by-step example of how Sunwest Trust might fill out your 5498 form.

[3:05] What does this change do, and how does it affect you?

[3:35] Who is responsible for form 5498?

[3:58] Remember, form 5498 will have the new fields this year, but they won’t be filled out.

[4:39] Talk to your tax professional about how it might affect your self directed IRA.

[5:08] What else does Sunwest Trust need to know?

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What is form 5498?

The Form 5498 is a form that reports your yearly investments to the IRS. The form reports contributions, rollovers, RMDs, distributions, repayments, etc.

What is a 5498 tax form used for?

The Form 5498 reports primarily two important details to the IRS:

1) The Fair Market Value of your account.

2) Any contributions to the IRA from the prior year. (Again, contributions can be made until April 15th)

The Fair Market Value of your self directed IRA is established by:

1) The Asset Valuation Form the account holder provided in January,

2) The contributions made for a certain year (up until April 15th),

3) and the cash that is held in the account.

Again, there is no action needed on the accountholder’s side, but to save a copy of the form for your records. A copy of the 5498 is sent to the client and a copy is sent to the IRS for reporting purposes.

Form 5498 Changes – Optional or Mandatory?

Starting this year, there are two extra boxes on the 5498 form. This year whether those entries are completed is completely optional for reporting purposes. However, during the tax reporting starting next year, the boxes on the 5498 will be mandatory and required by the IRS.

On the 5498, there are two new boxes (boxes 15a and 15b) that will report the following items to the IRS:

  1. It will report the Fair Market Value (FMV) of the assets held in your IRA
  2. It will report the types of assets held in your IRA

The 5498 form instructions list specific assets with corresponding code to indicate the type of assets in the IRA.

There are eight options:

(A) Stock or other ownership interest in a corporation that is readily traded

(B) Short or long term debt obligation

(C) Ownership interest in an LLC

(D) Real estate

(E) Ownership interest in a partnership or similar entity

(F) Option contracts or similar products

(G) Other assets that don’t readily have an FMV

(H) More than two types of assets held in the IRA

How do the form 5498 changes affect my taxes and what does this mean for you?

Candidly, we aren’t quite yet sure. As far as we know, the IRS is just interested in recording the types of investments that people are making. The new codes will directly impact the self directed IRAs more so than the traditional IRAs because stocks, bonds, and mutual funds are readily marketable investments, whereas self directed IRAs typically hold assets that can be harder to find a fair market value.

When is form 5498 mailed by your IRA Custodian?

It is the responsibility of your IRA custodian to send out the Form 5498 to both you and the IRA annually before May 31 to the IRS for the previous year’s tax season. This is because you can still make contributions to your IRA up until April 15th of the current year for the previous tax year. You will notice two extra boxes near the bottom, the center of the Form labeled 15a and 15b. Adding the appropriate information to this year’s are optional and will remain blank, but starting next year, boxes 15a and 15b will be required.

What Line Does Form 5498 go on for the 1040?

The 5498 is not required to file your taxes and the form is issued by the custodian after the April 15th tax filing deadline. You just need to keep the form for your records.

If you have any personal tax concerns or if anything is unclear, then now would be a great time to speak with your CPA or tax professional for clarification.

Video Transcript

Today, we’re going to talk about the exciting subject of 5498, and there have been some changes in 5498s that were proposed, and finally, became law. What has happened is, if you look at an old 5498, it only has 14 lines that have to be filled out for various things.

The 5498 tells the IRS:

(a) Whether or not you completed a rollover.

(b) It tells them how much your IRA is worth.

(c) It tells them if you had contributions to your IRA during the year.

(d) It tells them about RMDs and various other things.

You can look at 5498 and see all the boxes that need to be filled up.

When you get your 5498 in May, you will see two additional boxes that may or may not be filled out. If you have an account with Sunwest Trust, they will not be filled out because it’s optional this year. When you get your 5498 in the future for the previous year’s transactions both box 15a and 15b will be filled out, and what that does is that it adds two things. Number one is we have to tell the IRS the fair market value of certain, specific assets.

What that’s basically asking for is a list. If you were to go to the 5498 form and then look at the directions for that form, there’s a list of the specific assets, and there are about seven of them: stocks that are not readily tradable—stocks and private companies, short- or long-term debt obligations, ownership interests and limited liability companies, real estate, ownership interest in a partnership trust or similar entity, option contracts or similar products, and other assets –code “G”. The code goes through “H” then, where “H” is used if there are more than two types.

If you have a limited liability company, then we will put the value that you provide to us on December 31st. We’ll put that value in box 15a, and then in box 15b we will use Code C, which is ownership of a limited liability company.

If that’s all you have in your account, all we will show is Code C. If you have a piece of real estate in your IRA and you also have an interest in a limited liability company, we would show in that box Code C and for real estate, Code D. If you have more than two things, then we will use Code H.

Now, what does all this mean to you? I’m not exactly sure what it is going to mean or what it does. Is it giving the IRS an idea of what people have in their accounts? I think it’s going to affect self-direct IRAs more so than it affects the regular brokerage houses where you have stocks, bonds, mutual funds because those are readily marketable investments, and they won’t have to fill out line 15a and 15b.

In a self-directed IRA, like you have here at Sunwest Trust, we will use line 15a and 15b and it gives the IRS an idea of what types of investments you have in your account and the fact that those investments are probably not super liquid, like a stock or a bond or a mutual fund is.

So that’s just something to keep in mind, again, the 5498 that you get on or before May 31st of this year will have boxes 15a and 15b on it. They will not be filled out by Sunwest Trust this year. When you get the same form in 2016, on or before May 31st, boxes 15a and 15b will be filled out.

It’s just something to keep in mind. I’m not sure exactly how it’s going to be used or what the effect is. If it’s going to more information that we will be providing to the IRS, they will have to tie it back to your tax return, I assume.

You might want to talk to your tax professional about this and ask their opinion about how this might affect your self-directed IRA. Also, it’s just very important, like we’ve said before, for you to provide us with the best estimate that you can get from a third party of the value of the assets in your IRA. We’ve had videos about that before. You can go back to our YouTube channel. Look at the videos and see exactly what we require. It’s very important that we get a very good third-party value of all the assets in your IRA.

We love doing these Tuesday @ 2:00 videos. I hope that you get some good information from them and I hope that you watch it again next Tuesday. Thank you.


Terry White

About Terry White

I started my business career after getting my degree in Accounting from the University of New Mexico in 1983. My first job was as a controller for a local title company, and in 1987 I started First Financial Escrow, Inc. Over the years I played a part in several startup companies including First Financial Equities, Inc., First Financial Trust, Inc., First Financial Marketing, Inc. and Asset Ventures, Inc. In 1997 First Financial Escrow, Inc. was able to purchase the escrow accounts from Sunwest Bank and changed its name to Sunwest Escrow. As the market changes, Sunwest has grown and changed along with it. Besides my wife, Sheila, we have three boys, two daughters-in-law, one grandson, another grandson on the way and a future daughter-in-law. Sunwest is my passion, and I enjoy coming to work every day to see what will happen next. I enjoy fly fishing, spending time in Colorado, biking and watching my boys play soccer.