What’s Form 5498 and why does it arrive in May?

You may be receiving a Form 5498 in May If you have a Health Savings Account, a Roth IRA, or other IRA. It might seem like you just got done receiving and compiling all your tax forms and now your financial institution sends this one in May? Hello, isn’t that a little late? Or were they lazy because of the extended deadline this year? Do you have to call your accountant or financial planner, again?

Hold the calls. You may remember reporting to your accountant (or TurboTax) that you made some contributions to these accounts. Perhaps you made them last year, or perhaps you made them before the April 15 deadline (which has been extended to May 17 for 2021) and had them “count” for 2020.

What’s a Form 5498 for?

One purpose of the Form 5498 is for the financial institution (called a “custodian”) to verify to the IRS that you did indeed make the contribution that you claim you did on your tax return. It also tells the IRS what your Required Minimum Distribution will be for the current year, if you are over 72.

Since everyone usually has until April 15 to make contributions, the IRS usually gives custodians until May 31 to send Form 5498. This year, some custodians are still sending the 5498 in May anyway, probably because their systems are programmed to do so. If you receive one in May but still intend to make a 2020 contribution before May 17, you will receive an updated 5498 later.

Check Form 5498 For Errors

Before you file the 5498 away, make sure it’s correct. Mistakes are common. In 2018, my husband and I both had erroneous 5498’s for our Health Savings Accounts. I made my 2017 contribution in February 2018 and he made his on an ongoing quarterly basis. Mine showed $0 contributions for 2017 and his showed 2 years’ worth. So we called the bank where they were held and got corrected ones sent to the IRS for 2018.

If your 5498 differs from what you reported on your 1040, at some point it could get noticed. Then one fantastic sunny day in the future, as you skip to your mailbox, inside will be a skinny white envelope with “Internal Revenue Service” in the return address. Fantastic day ruined.

More than likely, all the letter will say is, “Hey, we noticed your 5498 doesn’t match your 1040. What gives?” But still. Save yourself the trouble of having to answer (or pay your accountant to answer for you) and do a quick check now.

It only takes a few minutes. Does your contribution amount for 2020 look correct? Did you take any 2020 HSA or IRA distributions, and if so, do those look correct? (If not, make sure it says 0.) Is your SSN correct? How about your name, including your middle initial?

If anything looks amiss, contact your custodian to get a corrected one issued ASAP.

One More Tax Task

By this time of year, it’s normal to feel sick of tax stuff. The last thing you may want to do is deal with another form, especially an erroneous one. If you don’t want the bother, at least forward it to your financial or tax professional to check it out and help. It’s no bother. Whether it’s May, July, January, or December – we deal with tax stuff all year long.

Holly Donaldson

Holly P. Donaldson, CFP® writes and consults on the psychology of money. Her fee-only, product-free financial planning practice focuses on increasing financial self-efficacy for those seeking a financial navigator to help them make good decisions. She is the author of The Mindful Money Mentality: How to Find Balance in Your Financial Future (Porchview Publishing, 2013) and publisher of the award-winning monthly e-letter, "The View From the Porch." With a fully virtual practice in Seminole, Florida, she primarily serves clients located in the Tampa, St. Petersburg, and Clearwater areas. Holly will also work with clients who are a good fit located elsewhere in the United States.

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