Form 5498
I have a client that liquidated an annuity IRA that was custodian linked to a brokerage account IRA. The check was mailed directly to the custodian and deposited to the IRA. The annuity company sent my client a 1099R with distribution code #7.
This should have been a rollover so why was a 1099R sent? I thought maybe that a Form 5498 would be sent showing the rollover amount and questioned the broker/dealer about this. This is what they told me below:
”
…5498 is not a tax form. The IRS doesn’t track Contributions and it is the client’s responsibility to keep up with the contribution and rollover amounts.” __________
Is this correct and what should I tell the client? I do not want him to be taxed on this amount. Please help. Thank you
Lewis
Permalink Submitted by Edward Czapor on Fri, 2009-02-27 23:16
Perhaps the check was made payable to the client rather than the custodian. In either event, the easiest solution is to report the transaction as a rollover on the tax return, as long as the one rollover rule within 12 months is not violated.
Show total distribution on line 15a of Form 1040, and 0 taxable on line 15b with “rollover” written to the left of line 15b.
Permalink Submitted by Alan Spross on Sat, 2009-02-28 01:41
The broker dealer’s explanation is hogwash, although there are quite a few cases where there is a missing item in the expected 1099R and 5498 matchup. It appears that the 1099R was in error, and the BD does not want to raise this issue with the insurer. If the IRA owner now reports it as required and later does a different rollover within 12 months, it may take extra documentation to demonstrate that the transfer should not count as a rollover even though a 1099R was issued.
Permalink Submitted by Jose Morales on Tue, 2009-03-03 18:49
There could potentially be a couple issues here. If your client did liquidate the annuity and then completed a rollover there would be a 1099R that would have been received in january. The 5498 reporting the rollover may not come until May, as this form contains all reportable contribution and rollover information through April 15th (next month). If your client received a Fair Market Value statment in January it should also show the rollover, although this is not an “official” IRS tax form for tax reporting purposes, however it can be used to verify that a rollover will be reported. Some financial institutions send out a combined FMV/5498 in January and then send an updated 5498 for clients that have any reportable activity between January and April 15th.
It sounds like what the client really wanted was an IRA to IRA transfer that would have resulted in no tax reporting whatsoever. If this was the case then the client should have initiated the transation with the brokerage at which he wanted to establish the new IRA. They would have then sent the custodian that held the annuity a transfer request.
These kinds of mistakes often happen when you have a client that asks for a “rollover” when they really mean a “transfer,” and also when they speak to someone at a financial institution who either doesn’t stop to ask questions to determine what the client really is asking for or just doesn’t know the difference themselves.