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 | Yesterday I received a couple of Form 5498 documents in the mail. These documents are mailed out (usually in May) to report information about IRAs, HSAs and other types of tax-preferred savings accounts. Generally speaking, taxpayers don't need to do anything with Form 5498. It's function is to report information to you and to the Internal Revenue Service, and much of the useful information is probably already reported on your tax return. | |
Understanding Form 5498
Despite the fact that I know I don't need to do anything with the Form 5498 (I'm pretty sure it's accurate), I nonetheless set myself the task of cross-checking these documents against my tax return. And I learned some pretty interesting things in the process. First, the Form 5498 reports the total amount contributed to IRAs, SEP IRAs and other IRA-based savings plans. What I learned is that how IRA contributions are reported on this form differs by the type of plan (Traditional and Roth IRAs are reported by the tax year designated by the account holder; while SEP and SIMPLE IRAs are reported by calendar year.) Also, total IRA contributions are reported (even if an over-contribution is later withdrawn).
| Thinking about Withdrawing IRA Money Early?
People sometimes need to tap into savings inside an IRA before reaching age 59-and-a-half. And in that situation, we look at ways to minimize the 10% surtax applied to early distributions. For example, distributions for large medical bills, higher education or buying a home can avoid this early distribution penalty.
| Retirement Savings Plans for the Self-Employed
Self-employed persons have a variety of options for tax-preferred retirement plans. The two most popular are the SEP IRA and SIMPLE IRA plans, due to their relatively low administrative burden. But self-employed persons can also set up their own 401(k) plan, often called a solo 401(k) or individual 401(k), which has the advantage of providing Roth-style funding contributions and potentially higher savings.
| Deducting Losses in a IRA
Investment losses inside an individual retirement account is painful, and the general advice is to try to rebuild savings. However in some cases it might make sense just to cash out and take the loss on your tax return. This isn't so much a strategy, as an opportunity to squeeze some tax benefit out of a bad situation. Be aware that taking an IRA loss requires taking a distribution of all funds from IRAs of the same type (traditional or Roth), and the loss deduction works much better with Roth IRA than with traditional IRAs.
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