IRAs and Applicable Tax Documents
Ah, tax season. Arguably one of the most dreaded times of the year. Whether you are Johnny on the Spot and file on January 2nd or are the King of Procrastination and file for an extension, it is important to know which tax documents you should be receiving and when you can expect them.
We are all familiar with Form W-2, the tax form employers use to report wages paid to employees and the taxes withheld from them. You may be a contractor receiving Form 1099-NEC each year. If you have retirement accounts, you can expect to receive certain tax forms from those companies as well.
The most common tax documents for an IRA are Form 1099-R and Form 5498. Unfortunately, clients get these forms confused and don’t’ necessarily know when they are applicable.
IRS Form 1099-R
You will only receive Form 1099-R if you received a distribution of cash or investments directly to you from your IRA during the reporting tax year. The form reports the amount of cash or investments you received and any taxes you elected to have withheld.
IRS Form 5498
Form 5498 is used to report the value of your IRA as of the last day of the tax year, as well as any amounts you contributed to the account throughout the year. It also identifies any amounts received by the account in rollovers. If you are age 73 or older, the form will also provide you with the amount you will be required to take in distributions in the following tax year. If your account was open as of December 31, you can expect to receive Form 5498.
Additional Information
Your IRA service company must provide these tax documents to you no later than January 31st of the current tax year for the previous reporting period. They may be sent to you via USPS, or you may be able to download them from a secure portal.
The documents are not provided to the IRS by Preferred Trust until the IRS imposed deadline. This allows for any corrections to be made if necessary and for you to contribute to your account for the previous tax year. You have until Tax Day, April 15th to contribute. The IRS reporting deadlines for your custodian are March 31st for 1099’s and May 31st for 5498’s.
What if you receive Form 1099-INT or Form K-1 related to investment you have within your IRA, and it has your personal information on the form. Any investments held in your retirement account must be associated with the vesting name of your account and the EIN for the custodian. It will be important for you to follow up with the investment sponsor as well as your custodian to ensure that the form is corrected before the information is sent to the IRS.
It is important for you to review all tax documents you receive for accuracy and communicate with your custodian if you notice any discrepancies. This will ensure that Tax Day isn’t so painful after all.
