Understanding the 5498 Form

Key Takeaways

• In addition to contributions, Form 5498 reports any Roth IRA conversions, required minimum distributions, rollover, the IRA account’s fair market value, and other related items.

• Alternative investments may be a viable way to help fund retirement.

Contributors to an individual retirement account (IRA) will receive IRS Form 5498, which should be kept with tax records for verification. Here is what you should know about the form:

What is Form 5498?

By May 31st of each year, IRA holders and the Internal Revenue Service will receive a document called Form 5498: IRA Contribution Information.

The form is purely informational and is issued by the IRA’s trustee or custodian – usually the bank or other institution that manages the IRA account. The IRS uses the information on the form to substantiate reported contributions.

In addition to contributions, the form reports any Roth IRA conversions, required minimum distributions, rollover, and the IRA account’s fair market value.

What are the Different Types of 5498 Forms?

There are types of forms that are similar to Form 5498, including:

5498-ESA. This is for Coverdell ESA plan contributions. This type of plan is a custodial account established to pay qualified education expenses of an individual.

5498-SA. This is for those who have a tax-free health savings account (HSA). It reports annual contributions that are used to pay for qualified medical expenses. Contributions to similar accounts such as Medicare Advantage MSAs and Archer Medical Savings Accounts will also generate this form, which must be mailed to account owners and the IRS by May 31.

What is Included on Form 5498?

The completed form contains information including:

• IRA ownership and type. In addition to the name, address, and federal identification number of the trustee, and similar information for the account owner, the form includes a box containing the IRA type (i.e., SIMPLE, Roth, SEP).
• Contributions. This includes all IRA contributions for the year, with the combined total entered. Deemed IRAs – employee contribution plans established as Roth or traditional IRAs and added onto an employer’s qualified retirement plan – are treated as regular IRAs and may be traditional or Roth.
• Rollovers. For IRAs, just a single rollover is allowed within a 12-month period. There is no limit, though, on the rollover’s dollar amount. Note that if a deduction is claimed that exceeds the amount reported on the form, the IRS will contact the account owner regarding the discrepancy, and seek additional taxes, interest, and penalties for the tax underpayment.
• Roth IRA conversions and recharacterizations. Note that the amount reported here does not limit the total that can be contributed annually to a retirement account, including a Roth. And while recharacterized conversions to a Roth IRA are no longer allowed, contributions made to one IRA type – Roth or traditional – can be recharacterized as having been made to the other IRA type. The account owner can instruct the trustee to make such recharacterization.
• Withdrawal and distribution information. IRA holders who are 73 (for individuals born between 1951 and 1959) or 75 (for those born in 1960 or later) must each year take required minimum distributions from the IRA. This is also true for surviving spouses and minor offspring who inherit an IRA and choose how to roll it over into their own account or withdraw funds over five years.

What are IRA Contribution Limits?

The tax agency establishes contribution limits for IRAs. For tax year 2023, the ceiling is $6,500 if the holder is under age 50. For those age 50 or older, the amount is $7,500. The limits for tax year 2024 are $7,000 and $8,000, respectively.

Note that if contributions exceed annual limits – which change periodically to keep pace with inflation – a 6% excise tax will be levied on the amount that is above the limit for each year it stays in the account.

What Are Additional Ways to Save for Retirement?

In addition to IRAs, other retirement plans can include:

• Solo 401(k)
• Traditional pensions
• Guaranteed income annuities
• Federal Thrift Savings Plan
• Cash-balance plans
• Nonqualified deferred compensation
• Cash-value life insurance
• Alternative investments

How to Get Started in Investing in Alternatives

Because alternatives can provide steady secondary income, incorporating them into retirement plans might be a smart idea. After all, such investments – basically any assets other than stocks, bonds, and cash – can provide protection against volatility due to their low correlation to public markets. Over the past 15 years, private markets have outperformed stocks in every downturn.

Investors interested in alternatives can go through the investment platform Yieldstreet – which also offers a private market IRA — for curated and highly vetted investment opportunities in real estate, art, private credit, crypto, legal finance, and venture capital and with low minimum buy-ins. To date, more than $3.2 billion has been invested on the platform.

Alternative investments also serve to diversify one’s portfolio, which is key to successful investing. If a portion of holdings are underperforming, diversification gives other assets opportunities to perform.

Traditional portfolio asset allocation envisages a 60% public stock and 40% fixed income allocation. However, a more balanced 60/20/20 or 50/30/20 split, incorporating alternative assets, may make a portfolio less sensitive to public market short-term swings.

Real estate, private equity, venture capital, digital assets, precious metals and collectibles are among the asset classes deemed “alternative investments.” Broadly speaking, such investments tend to be less connected to public equity, and thus offer potential for diversification. Of course, like traditional investments, it is important to remember that alternatives also entail a degree of risk.

In some cases, this risk can be greater than that of traditional investments. This is why these asset classes were traditionally accessible only to an exclusive base of wealthy individuals and institutional investors buying in at very high minimums — often between $500,000 and $1 million. These people were considered to be more capable of weathering losses of that magnitude, should the investments underperform. However, that meant the potentially exceptional gains these investments presented were also limited to these groups.

To democratize these opportunities, Yieldstreet has opened a number of carefully curated alternative investment strategies to all investors. While the risk is still there, the company offers help in capitalizing on areas such as real estate, legal finance, art finance and structured notes — as well as a wide range of other unique alternative investments. Learn more about the ways Yieldstreet can help diversify and grow portfolios.

Summary

IRS Form 5498 contains information about account holders’ contributions, Roth conversions, rollovers, and required minimum distributions.

Remember that, with regards to retirement, it may be a wise move to add alternatives to one’s asset allocation mix. While no investment is risk free, such assets could potentially provide consistent passive retirement income.

All securities involve risk and may result in significant losses. Alternative investments involve specific risks that may be greater than those associated with traditional investments; are not suitable for all clients; and intended for experienced and sophisticated investors who meet specific suitability requirements and are willing to bear the high economic risks of the investment. Investments of this type may engage in speculative investment practices; carry additional risk of loss, including possibility of partial or total loss of invested capital, due to the nature and volatility of the underlying investments; and are generally considered to be illiquid due to restrictive repurchase procedures. These investments may also involve different regulatory and reporting requirements, complex tax structures, and delays in distributing important tax information. Diversification does not ensure a profit or protect against a loss in a declining market.