Our in-house tax guru, Taylor Wolverton, CFP®, EA, sat down with us on this week’s podcast to help explain the ins and outs of Form 5498. Just a few days ago, a client sent us an email they received from Schwab saying, “important tax information.” 

The email said that Form 5498 was available for him to download. Our client was concerned because he had already filed his 2023 tax return and didn’t know why he was receiving this form or what implications it had. 

He asked us what he needed to do. That prompted us to have Taylor on the podcast to help all of our listeners and clients learn more about this form. 

Taylor’s Response to the Client’s Email 

First off, do not stress about Form 5498. For this particular client, the form was generated because he had transferred a 401(k) to a traditional IRA in 2023. The form was issued from the custodian of the traditional IRA to document that the 401(k) rollover was received as expected.  

This does not change anything in terms of filing taxes. 

You do want to keep Form 5498 for your records in case you’re audited or have to prove such a transaction was completed properly to the IRS. 

Why Form 5498 is Important 

When you open your email and the form, you’re likely to see some information about your contribution to your Roth IRA, Traditional IRA, SEP IRA, or Simple IRA. If you put money into these accounts the prior tax year, you’ll receive this form. 

An account receiving a 401(k) or other employer-sponsored retirement plan rollover (like what happened with the client in our example) is also reported on this form. 

In some cases, Form 5498 may also report what your required minimum distributions (RMDs) are if that applies to your situation. You’ll see the fair market value of the IRA from the year prior and what the previous year’s distributions should have been. 

Form 5498 vs 1099 

A 1099 is a tax form that reports distributions or sources of income, which are normally taxable. You need this information for your tax return, so be sure that you have this form before filing your taxes. 

In contrast, your 5498 reports contributions to your account, RMD information, and/or that a rollover has occurred. 

To make it simple: 

• A 1099 reports distributions 
• A 5498 reports contributions 

Does Form 5498 Help Reduce Taxable Income? 

Whether this form affects your taxable income depends on what the form is reporting. Contributions to a traditional IRA (or SEP IRA or Simple IRA) can be deducted on a tax return to reduce taxable income. However, you don’t need to wait to receive Form 5498 to report those contribution types on your tax return.  

If the form contains information about an RMD, this should have also been already reported on your tax return. Because RMDs are a source of income, they will generate form 1099R which you should receive before your tax return is filed. The RMD information reported on Form 5498 is a way for the IRS to reconcile the distributions reported on your tax return with what the form says needed to be distribution to ensure you’ve met the requirement.  

If Form 5498 reports your Roth IRA contribution or a rollover, this does not reduce your taxable income. Roth IRA contributions are not reported on the tax return. Rollovers are noted on the tax return but if done correctly, also do not impact taxable income in any way. 

Form 5498 is Reported to the IRS 

A Form 5498 is for checks and balances. Your custodian will send both you and the IRS the same form. The IRS will reconcile the information reported on your tax return with the information on this form. 

Example of a Rollover Contribution  

Let’s assume in 2023 someone had their 401(k) with Empower. If the person chose to transfer the 401(k) from Empower to a traditional IRA at Schwab: 

• They would receive a 1099-R in January or February from Empower 
• The 1099-R would show that the 401(k) no longer exists and the full amount at the time of the rollover, which is recorded as a distribution that is not taxable. 
• The rollover is noted on the tax return by the tax preparer 
• In May of 2024, Schwab would send out Form 5498 showing the same amount from the 401(k) confirming that it was received into a traditional IRA. 

In this scenario, the 5498 confirms that the rollover didn’t simply end up in your checking account and that you did move the money into a traditional IRA like it should have been. 

If you did pocket the money and never did the actual rollover, you potentially owe taxes and penalties on the distribution. 

Why Does Form 5498 Come Out So Late in the Year? 

While it may seem inconvenient that Form 5498 doesn’t come out at the same time as all other tax forms such as forms 1099, there is a delay because the deadline to contribute to many of your accounts is the same as the tax filing deadline. 

So, for example, if you wanted to make a Roth IRA contribution for 2023 as part of your retirement planning strategy, you have until April 15, 2024, to make this contribution. 

Form 5498 cannot be generated and sent out until after the contribution deadline, so that is why you’ll receive it later than your other tax forms. 

In conclusion, if you do receive Form 5498, simply keep the form with your other tax records. If you’ve already filed your tax return, there’s nothing else that you need to do with it. 

Do you have any questions regarding Form 5498 or about your retirement plan? 

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