By Dustin Burns
Your taxes are filed. The refund is in the bank. So why will you be receiving another tax form at the end of May? For those of you who made an IRA contribution or rolled your 401K into an IRA in 2016, you will be receiving ‘Form 5498’ by U.S. Mail next month. No need to panic nor do you need to amend your 2016 tax return.
Form 5498 is generated by the custodian of your retirement account. It is for informational purposes only. The information your custodian is reporting to you is the amount of contributions credited to you in the 2016 tax year. You DO NOT need to file Form 5498 with your 2016 return, but you should review the information for exactness. This form gives you the opportunity to validate the accuracy of your custodian’s reporting to the IRS in order to avoid un-necessary tax complications. For example, the custodian may have indicated a contribution was a rollover by mistake. This could cause a problem if you took a deduction on your 2016 tax return for the reported contribution.
So if the form is for informational purposes only and the IRS gets a copy, then what should you do with this form? The answer depends on what type of contribution you made. If the contribution was made before-tax, meaning you deducted the contribution on the front of your 2016 tax return, then any distributions from the IRA you take in the future will be recognized as ordinary income (standard for traditional IRA contributions). However, if the deposits you made were after-tax contributions and not deducted on your Form 1040, then you should keep Form 5498 with your supporting documentation to ensure that you do not incur double taxation in the future. We recommend that you keep Form 5498 for as long as you have the retirement account.
Still have questions? Contact your tax preparer for further explanation.
Lighthouse Financial Services, Inc. is a Registered Investment Advisor with the Securities Exchange Commission.