Advanced Underwriting Consultants

Question of the Day – March 28

Ask the Experts!

The professionals at Advanced Underwriting Consultants (AUC) answer the tax and technical questions posed by producers.  Here’s the question of the day.

Question:  My client intends to make a Roth IRA contribution for 2012.  Where does she report that contribution on her tax return?

Answer:  Nowhere.  Roth IRA contributions are not reported on the individual’s tax return.  The IRA custodian does report a taxpayer’s Roth IRA contributions as part of its Form 5498 reporting obligation.

Form 5498 is filed with the Internal Revenue Service and a copy is also sent to the person who owns the account. Form 5498 provides confirmation to the IRS of the amounts the taxpayer contribution to traditional and Roth IRAs.

The taxpayer is obligated to keep records of Roth IRA contributions on her own, to substantiate that her contributions were proper, and also to prepare for proper tax treatment of future distributions from the Roth.

Have a question for the professionals at AUC?  Feel welcome to submit it by email.  We may post your question and the answer as the question of the day. 

Question of the Day – June 19

Ask the Experts!

Here’s the question of the day.

Question: My client received a Form 1099 and Form 5498 from her IRA custodian last year.  What’s up with the two forms?

Answer: The IRA custodian is required to file Form 5498 with the IRS every year that the IRA exists.  The custodian only issues a Form 1099 to the taxpayer and the IRS when there is a distribution from the IRA.

Copies of Form 1099 are required to be sent to the taxpayer by the end of January following the calendar year of distribution, and to the IRS by the end of February.

The IRA custodian must issue Form 5498 by May 31st after the calendar year for which it is filed.

There may be inconsistencies between what is reported on Form 5498, and what the taxpayer reports on her income tax return.  For example, in the case of a traditional IRA, contributions made between April 16th and December 31st of a calendar year are assumed to be contributions made for that calendar year.  On the other hand, traditional IRA contributions made between January 1st and April 15th may be either a contribution for that calendar year or the prior calendar year.   The taxpayer must indicate on the form submitted to the IRA custodian to which year the contribution applies.  That isn’t always done perfectly, and may cause an inconsistency between Forms.

Likewise, SEP contributions for 2011 can be made as late as October 15, 2012.  However, since Form 5498 for 2012 must be filed by May 31st, it won’t show 2011 SEP contributions made late in 2012.

In many cases, the deduction taken on the tax return and the number indicated on the Form 5498 for that year may not agree.  The client will just have to take it on faith that the CPA or other tax preparer will report the correct deduction amount in the appropriate year and it won’t cause a problem.

Have a question for the professionals at AUC?  Feel welcome to submit it by email.  We may post your question and the answer as the question of the day.