How to Monitor Individual Retirement Account Contributions

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Investment Q&A: I received Form 5498 in the mail a few weeks ago from the brokerage firm where I have my traditional IRA. It shows the IRA contribution I made for last year, but it came after I filed my taxes, so I was confused about what I need to do with it. Should I have submitted this with my tax return?

Answer: When you make a contribution to your Individual Retirement Account (IRA), in the year after you make the contribution, you will be issued a 5498 form from the IRS. The 5498 form will generally arrive within two to three weeks following the deadline for filing your taxes; however, there’s no need for concern because the form is not required when tax filing. You will, however, still need to retain the form for your records for later use.

The 5498 details the payments you deposited to your IRA, as well as any payments deposited to a Simple IRA, Roth IRA, and SEP (Simplified Employee Pension). It also details Roth conversions, and transfer payments. It also includes any health savings account contributions. And though the form usually arrives after you have already filed your taxes, you still need to crosscheck the information contained on the 5498 form with the information recorded in your tax records and on your tax return to ensure it matches.

If you deposited payments to a traditional Individual Retirement Account, the 5498 form is especially useful. In fact, if you deposited any nontaxable payments to a traditional IRA, then part of the monies you remove from the account will not be taxed. If you are not sure of the amount of nondeductible payments you have made to your Individual Retirement Account, then you can simply gather your previous tax returns, and then contrast them against the 5498 to see if you subtracted any payments.

The 5498 form alone does not reveal if your payments could be subtracted from your taxes. Therefore, you will need to compare it to your previous tax records in order to get a clear picture of the tax deductions gained.

The form also serves as proof or as sort of a backup document to the information the taxpayer included on their tax records for the year the payment was made. Because IRA payments lower the amount of tax owed as well as taxable earnings, it can raise certain concerns with the IRS when monies are removed, especially in cases where a rollover occurred, which was nontaxable up until it was removed.

Therefore, even though the 5498 form is not required to file your taxes, it is always a good idea to retain this record in the event the IRS requests proof that the money was actually deposited into the Individual Retirement Account and not another tax-deferred account or used for personal use. As a general rule, you should retain the 5498 form for up to 3 years, which is the statute of limitations for IRS inquiries.

For more help understanding the 5498 form or Individual Retirement Account payments and deductions, be sure to contact an experienced tax adviser, who is both skilled and knowledgeable in various taxation issues and can assist clients with planning their financial future and creating tax strategies. They also provide tax records for their clients, as well as tax guidance, and can even appear for taxpayers before the IRS.