Tax Form 5498 is used to report contributions on IRAs, which include traditional and Roth, as well as Savings Incentive Match Plan for Employees (SIMPLE) and Simplified Employee Pension (SEP).
Many people are under the impression that they need Tax Form 5498 in order to file their final return. This tax form is for informational purposes only, and is not to be sent to the IRS along with your tax return. IRS regulations state that these tax forms must be sent to contributors by no later than May 31st of the next year. For this reason, most people have already filed their final return.
Even though you do not need to send Tax Form 5498 to the IRS along with your return, it is important that you keep this information for your records. Along with this, you should make sure that your contribution matches the amount in Box 1. If you believe there is an error, get in touch with your plan administrator as soon as possible. An inaccurate recording could lead to many issues, including lost money and taking the wrong tax deduction.
IRS Tax Form 5498 (IRA Contribution Information)
There is a chance that the contributions on Tax Form 5498 will be different than those found on your quarterly or annual statement. The reason for this is simple ? this tax form includes all contributions for the previous tax year, as well as those made through April 15 of the current year. It is important that you are comparing the right numbers when determining if your records match what is included on Tax Form 5498.
Just because Tax Form 5498 is only for informational purposes does not mean you should ignore it. Instead, when you receive one of these tax forms, make sure you double check the information and then file it away for future use.
For IRAs, earnings and contributions may grow tax-deferred, but distributions are fully taxable. If withdrawals are made after the age of 59½, they are free of penalties. If you have an IRA, you must begin making withdrawals by April 1st of the following year after you turn age 70½ ? you must also pay taxes on these distributions.
For Roth IRAs however, there are no minimum distributions. You may also make tax-free withdrawals from Roth accounts that have been owned for at least five years, if you are at least 59½ years old.
Converting to a Roth IRA
One of the most popular 2010 tax strategies is the traditional IRA to Roth IRA conversion. This is a tax strategy that thousands upon thousands of taxpayers are taking full advantage of. The reason that 2010 is the time to make this move is simple: there are no income limitations. Along with this, the IRS is allowing you to defer tax on the conversion until 2011 and 2012. This helps to spread out your tax liability, which makes it an appealing tax strategy.
One of the best ways to keep your investment earnings from falling into the hands of the IRS is to make investments through a retirement account, such as an IRA. Contributions to these accounts are often fully tax-deductible, though there may be penalties for withdrawing funds before you reach retirement age. Before making an investment in an IRA, keep in mind that if you or your spouse also has a 401(k) account, your IRA contributions may not be fully tax-deductible.