Form 5498

[sierra does accounting]

Hi Everyone - I would like to get some feedback regarding Form 5498. 

Typically when a client takes the distribution and I have a 1099-R, I will include the FMV under section 8606 in Lacerte (towards the bottom). I understand that this amount doesn't need to be reported or included if no distribution occurred. Is there any tax consequence (positive or negative) that may occur in the future by entering or failing to enter this information?

I found a spot for cost basis under Adjustments to Income > Traditional IRA >> Form 8606 >>> Basis in IRA as of 12/31/2019

I entered this information and it doesn't impact 2020 tax return. When the client does take a distribution in the future, could it be beneficial to have this ongoing cost basis in Lacerte?

Thank you!

[qbteachmt]

"I understand that this amount doesn't need to be reported or included if no distribution occurred."

If you have a 1099-R, then by definition a distribution occurred. The 8606 has the parts or sections, because different activities need different consideration. Roth or Traditional, inherited from spouse or non-spouse, and basis or not. That's why the FMV is included in some of the Parts on that form.

"Is there any tax consequence (positive or negative) that may occur in the future by entering or failing to enter this information?"

Yes. There is dependent info that would make this important for specific activities, such as Basis in a Traditional IRA or an inherited account, or in a Roth when Roth distributions are taken early, or Conversions.

"I entered this information and it doesn't impact 2020 tax return"

Because of the 1099-R, or simply because you got handed a 5498? You use the 5498 to confirm what the taxpayer tells you they did with the money that is on the 1099-R. You enter the 1099-R, because it is reportable. FMV and Basis are needed, well, when they apply and are needed as part of the computations.

"When the client does take a distribution in the future, could it be beneficial to have this ongoing cost basis in Lacerte?"

Yes.

Let's review.

1099-R is for money Out. A rollover, a change from one type of account or plan to another (a 401(k) or SIMPLE IRA is rolled into a Trad IRA account when the employee leaves or is terminated, for instance).

A 5498 is for money In. Example: When the person with a 401(k) having both pre- and post-tax money in the employer plan, rolls the post-tax part into a Roth and the pre-tax part into a Trad IRA. Or, when the post-tax part was not split off and got put into a Trad IRA, where it becomes basis.

And sometimes you might need to file form 8606 without a tax return:

https://www.irs.gov/instructions/i8606

[sierra does accounting]

Hello, 

Thank you for your reply and detailed explanation.

I understand we need enter the FMV from 5498 under 8606 when we receive the 1099-R.

What I am trying to determine is if there is any benefit to entering the Form 5498 when received on its own (without 1099-R) when a distribution did not occur?

To provide some additional context - I have had several clients provide their 5498s but they did not take a distribution in 2020 (and so no 1099-R to accompany it). Most of what I've read says not to do anything with it. But could it be beneficial to enter this info under 8606 directly (not within 1099-R) to help keep track of the FMV for when a distribution is taken down the road? Or would this have no impact?

Thanks again!

Sierra

[qbteachmt]

"is if there is any benefit to entering the Form 5498 when received on its own"

No, because that form is not a Tax Reporting form. It is Informational.

"and so no 1099-R to accompany it)"

The 1099-R means something has to be reported to the IRS. That is for money Out.

Remember: Form 5498 = money In. It happens if there is new activity in that account, even if there was no corresponding 1099-R for money Out.

Example:

https://www.irs.gov/instructions/i1099r#idm140339526069312

"Transfers

Generally, do not report a transfer between trustees or issuers that involves no payment or distribution of funds to the participant, including a trustee-to-trustee transfer from one IRA to another IRA..."

Or, you need to show a deductible Traditional IRA contribution on your taxes, to take the deduction and there is no 1099-R, because there is no money Out.

The receiving account would still trigger a 5498, which would show the new money In. This is not a tax reporting form. This is Informational. Specific activities drive if something needs to be reported.

"to help keep track of the FMV for when a distribution is taken down the road? Or would this have no impact?"

Yes, you would keep track. No, it might not matter in any specific year. Yes, it will matter when Distributions happen. No, not all distributions trigger Form 8606 reporting, either.

You track Basis, but there is nothing to report to the IRS unless something has a tax impact. Example: Every year you put into a Roth account, there is a new Form 5498, but nothing to report for taxes and no need to fill in form 8606.

Read the Instructions for Form 8606 for Who Must File:

https://www.irs.gov/pub/irs-pdf/i8606.pdf