IRA Tax Reporting: The Two Types and Key Forms

By Beverly DeVeny, Chief IRA Analyst
Follow Me on Twitter: @BevIRAEdSlott

There are two types of tax reporting for IRA accounts: the reporting that is mandatory for IRA custodians and the subsequent reporting that must be done by the IRA owner or beneficiary.

Reporting by IRA Custodians
IRA custodians must report the IRA owner’s contributions and distributions to IRS.

Your contributions are reported on Form 5498, which is issued in May each year. It is an informational form only. It will tell IRS if your contribution was made to an IRA or a Roth IRA, if it was a contribution, a rollover or a conversion to a Roth IRA, what your year-end account balance was, if the contribution was made with hard-to-value assets and it will tell IRS if IRA account owners – not beneficiaries – have a required minimum distribution for the current year.

Your distributions are reported on Form 1099-R, which is issued in January of any year when you took a distribution in the prior year. This form will tell IRS only the total amount of your distribution and if it was an in-kind distribution of a hard-to-value asset.

Reporting by IRA Owners or Beneficiaries
You don’t have to do anything with Form 5498 except look it over to be sure it’s accurate. You do not need to file it with your tax return. But don’t forget that IRS will be on the lookout for you to take a distribution if you are the IRA owner and are age 70 ½ or older during the current year.

A 1099-R, on the other hand, must be included on your income tax return. IRS will be looking for income tax on that distribution. This form should be checked as soon as it is received for accuracy. If you did a 60-day rollover or a qualified charitable distribution (QCD), then there is special reporting you do on the return so that the amounts rolled over or sent directly to charity are not taxable.

Form 8606 is filed by the IRA owner when an IRA distribution is converted to a Roth IRA. It is filed by both IRA owners and beneficiaries when there are after-tax amounts in any IRA or when a Roth IRA distribution is taken before it is a qualified distribution. It is also filed any time an IRA owner makes an after-tax contribution to an IRA. It is the only way that IRS will know that you have after-tax funds in your IRA.

Form 5329 is the form that is used when you owe a penalty on an IRA or Roth IRA transaction. It is used to report the 50% penalty for a required distribution that was not taken in the year it was due, the 10% early distribution penalty (or to correct the 1099-R reporting for a distribution that qualifies for an exception), and the 6% penalty on excess contributions. This form has its own signature line and is considered a separate return by IRS and the Tax Court. If this form is not filed, then the statute of limitations does not start to run on the penalty. Interest is charged on penalties that are paid late. Failing to file this form can also result in other penalties being assessed against the IRA owner or beneficiary such as the failure to file penalty and the accuracy related penalty.

If you have any questions on the tax reporting that is done for your IRA or Roth IRA or on the tax reporting that you must do, you should check with a professional who has experience with IRAs. Not all tax preparers or financial advisors are familiar with IRA rules and IRA tax reporting.