March 14, 2024
Tax Forms Demystified: Understanding the Basics of Forms 1099-R and 5498
The IRS requires that Pacific Premier Trust mail Form 1099-R to clients by January 31 and Form 5498 by May 31 of each year.
Pacific Premier Trust clients can access issued tax forms via our website by logging into your client portal and navigating to ‘Tax Documents’ in the document section.
It’s tax season again, and whether you’re filing on your own, using tax software, or working with an accountant, you’re likely sifting through a pile of documents. That’s especially true if you’ve used tax-deferred vehicles such as a self-directed IRA to meet your retirement goals, taking advantage of their ability to invest across public and private markets and into a wide range of alternative assets.
Let’s look at two important tax documents—Form 1099-R and Form 5498—and how they may affect an individual's taxes.
What is a Form 1099-R?
A 1099-R reports distributions from pensions, annuities, and retirement savings plans including 401(k)s, 457s, Traditional IRAs and Roth IRAs. You’ll get one if you took a distribution from one of these retirement savings accounts.
Your 1099-R will include some basic information about the payer, which is the organization that you took the distribution of funds from, and the recipient—that’s you. It will reveal the gross amount you received as well as the taxable amount. If you asked your retirement plan provider to withhold federal or state taxes from your distribution, it will show those amounts as well.
Certain distributions from tax-deferred retirement plans and accounts may need to be treated as ordinary income for tax purposes. Therefore, you may have to enter the amount of your distribution in the income portion of your tax return. You will also report any taxes you already paid through withholding. If you didn’t have enough withheld, you’ll have to pay taxes on your distribution. If you had too much withheld, you may get a refund.
Distributions are the most common reason for getting a 1099-R from Pacific Premier Trust. A distribution is a withdrawal of funds from your IRA, and can be a taxable transaction.
You will get a 1099-R even if you roll over money back into your retirement account at Pacific Premier Trust, or in another retirement account at a different organization. In most cases, when you roll the money within 60 days, you won’t have to pay taxes on the amount you roll back into your IRA.
A conversion is another taxable event that will be reported on Form 1099-R. A conversion is when you move money or assets from your Traditional IRA to your Roth IRA.
Understanding Form 5498
If you have an IRA and make contributions to it, you will receive a Form 5498. These forms report all of your contributions for the year. They will show what type of IRA you contributed to, whether it’s a Traditional IRA, a Simplified Employer Pension Plan (SEP-IRA), a Savings Incentive Match Plan for Employees (SIMPLE) IRA, or a Roth IRA. Contributions for a tax year can be made from January 1 through the tax filing deadline of the following year, generally April 15th without extensions. If you make a contribution from January 1st through April 15th and want it designated for the prior year, you will need to let your custodian know that it’s a prior year contribution. Employer contributions to SEP-IRAs and SIMPLE IRAs are always coded for the calendar year in which the contribution was received by the custodian/trustee.
Form 5498 reports the Fair Market Value (FMV) of your account as of December 31st of each year. However, if you had no other reportable transactions, the FMV will be reported to you on your 4th Quarter statement. Additionally, Form 5498 will report if you are required to take minimum distributions from your IRA when you reach the age of 73 and each year after.
You can deduct your contributions to Traditional IRAs in the years you make them—up to the maximum contribution limit allowed for your age (taxpayers over 50 can make catch-up contributions) and income level (deductibility phases out at higher incomes). The Form 5498 provides the information you’ll need to claim these deductions—the amount you’ve contributed over the previous year.
Reportable IRA transactions that would result in you receiving Form 5498 include:
- Contribution
- Rollover
- Conversion
- Recharacterization
Key differences between the Forms 1099-R and 5498
The 1099-R primarily reports money that has been taken out of your retirement savings accounts. The 5498, in contrast, shows you how much you’ve put in. You will get a 1099-R if you have taken a distribution from any of your tax-deferred retirement accounts. You will get a 5498 if you’ve made contributions or had other reportable transactions to an IRA.
It is certainly possible to receive both forms in a single year where you both took a distribution and had 5498 reportable activity in your account, like a contribution, a rollover, a conversion, or a recharacterization. You might equally receive just one of the forms or neither of them, depending on how you managed your retirement assets during the year.
Handling 1099-R and 5498 forms
If you receive either a 1099-R or a 5498, keep it with your other tax records. It’s best practice to save them, and all other relevant tax documents, for at least three years after you file. You may need these documents if you are audited.
If you use tax preparation software to file your taxes, the program will prompt you for the information from these two forms and then enter it in the correct portion of your tax return. A professional tax preparer will also know how to incorporate the information from these documents into your return. You don’t need to submit either form to the IRS because they will have them already, but you should make sure the information on the form matches what you put in your return.
Don’t be afraid to ask for help
No one ever said taxes were easy. Understanding how key forms like the 1099-R and 5498 work and what they do can help, but you may still have questions.
If you’ve taken a retirement plan distribution and received a 1099-R, a professional tax advisor can help you report the income and tax withholding correctly. If you’ve made contributions to an IRA and received a Form 5498, an expert will help you to get the maximum possible deduction for it.
If you would like further information, go to IRS.gov and search Form 1099-R or Form 5498 which will provide you instructions outside of the instructions on the forms themselves.
Pacific Premier Trust performs the duties of an independent custodian of assets for self-directed individual and business retirement accounts and does not provide investment advice, sell investments or offer any tax or legal advice. Any communication made by Pacific Premier Trust with regard to opening or using a self-directed individual and business retirement account shall not be construed as a recommendation, call to action, or investment strategy to establish a particular account type. Clients or potential clients are in no way obligated to purchase services from Pacific Premier Trust and are free to purchase such services from any custodian as they deem appropriate. Clients or potential clients are advised to perform their own due diligence in choosing any investment opportunity as well as consulting with a legal, tax or financial professionals to assist them with an investment opportunity. Any information communicated by Pacific Premier Trust is for informational and educational purposes only. Alternative investments are not FDIC insured and are subject to risk, including loss of principal. Pacific Premier Trust is not affiliated with any financial professional, investment sponsor, or investment, tax or legal advisor.