Form 5498 requirement date to IRS

[Brockly99]

I'm looking at a potential issue concerning how an IRA to IRA transfer was done this year and how the originating institute handled it. It boils down now as to how the 1099-R will be filled out. And how Turbotax handles it.

I've been trying to find out the required date that the Form  5498 must be delivered to the IRS by the originating institute. The only references I've been able to find is that the form is sent to the tax payer in May.  Does the IRS get it earlier or the same time as the tax payer?

Thanks

[dmertz]

The deadline for the custodian to file 2019 Form 5498 with the IRS is June 1, 2020.  It will generally be several weeks after that that the Form 5498 appears in your 2019 Wage & Income transcript.

The custodian is required to provided you with the FMV and indication of 2020 RMD requirement by January 31, 2020 and provide contribution (including rollover, conversion or recharacterization contributions) information to you by June 1, 2020.

The custodian can also request that the IRS provide up to a 30 day extension for cause, but this would be unusual.

Your only source of information on how the custodian will be reporting prior to actually receiving the Form 5498 is what the custodian tells you, but , unfortunately, such information can be inaccurate.  First-level representatives of financial institutions can be unreliable sources of that information, particularly at smaller financial institutions.  

[Brockly99]

Thank you. As suspected I'm getting fed a bunch of garbage by the custodian. I was told that the the IRS would get the Form 5498 in January and that it would straighten out what I see as a big mess with the IRS.

Didn't make since to me that the 5498 would be sent to the IRS in January, especially since you can still do IRA executions up to mid April.

Basically they blew it in the IRA funds move and it looks like I took a huge distribution for this year rather than a like to like transfer. And your are right, the warning flags and alarms are being raised because of what the low level employees are telling me as to how the 1099-R forms will be filled out.

[dmertz]

If the move of this IRA is being treated as a distribution, the custodian of the original account will issue Form 1099-R near the end of January.  It's the new IRA's custodian who will report a rollover contribution on Form 5498.  A custodian can issue a Form 5498 earlier, and often do if they have reason to believe that no new contributions will be made for the prior year, such as if you've already made a full-year's contribution to a different IRA account at the same custodian.  However, a trustee-to-trustee transfer of an IRA to another of the same type is neither a distribution nor a rollover, so there should be no reporting on these forms  at all for a proper trustee-to-trustee transfer of an IRA.

Many low-level employees don't understand the limitations on distributions and rollovers of IRAs, so they think that every movement of an IRA can be done by distribution and rollover and if they mistakenly report a distribution it's all good if reported as rolled over, when that's not necessarily the case.  Non-spouse beneficiaries are IRAs are not permitted to do a distribution and rollover of an inherited IRA and there is a generally a limitation of one IRA-to-IRA distribution and rollover per 12-month period in other cases.

[Brockly99]

Yes, according to the records with the original custodian, they are showing it as a normal distribution rather than a transfer. I found this out when I went in to take an rmd and they were questioning that because it looked as if I had already taken a huge distribution.

Which they then said I would be getting a 1099-R showing the huge gross distribution, all taxable, and a normal distribution code of 7.

Which to my simple mind seemed like a big red flag for the IRS and a major tax bill to me. This being the reason for my question about the timing of the 5498 to the IRS. And how to handle it in Turbotax if the above is  how the 1099-R will look.

[TomD8]

If the distribution passed through your hands (as opposed to a direct trustee-to-trustee rollover), the 1099-R you receive at year's end would correctly show a Distribution Code of "7" - normal distribution.

The Distribution Code for a direct trustee-to-trustee rollover would be "G".

When you enter a 1099-R with Distribution Code 7  into TurboTax, one of the follow-up questions will ask what you did with the money.  If you did a 60-day rollover of all or part of the distribution, you'll be able to indicate that to the program, and be taxed (or not taxed) accordingly.

[dmertz · Accepted solution]

Code G is only for a rollover to or from a qualified retirement plan like a 401(k), not for any movement of funds between IRAs.  A proper trustee-to-trustee transfer between like-kind IRAs is not reportable at all.

Since it appears that they have treated the movement of funds from one IRA to another as a distribution, you'll need to get them to correct their records to show it as a trustee-to-trustee transfer as long as the money was made payable to the new IRA instead of made payable to you personally.  If the money was made payable to you, giving you constructive receipt of the funds, and you subsequently deposited that money into a new IRA, constituting a rollover, you have a problem because that distribution indeed included your RMD since the first amounts distributed are RMD until the RMD for that account is satisfied and RMDs are not eligible for rollover.  Depositing an RMD into another IRA as a rollover constitutes an excess contribution to the receiving IRA and correcting that would require an explicit return of contribution before the due date of your tax return.

To summarize, it appears that you indeed have a situation that needs to be corrected.  You should not wait until next year to correct this, do it now.  Escalate to the financial institution's back-office IRA personnel.

[Brockly99]

Thanks guys for all the good info and confirming what I considered were going to be major issues to deal with next spring unless fixed now while fresh in mind for all those involved.

I spent the early morning in conference over the issue, and the parties involved have agreed to go back and see what they needed to do to fix their database. Also got a copy of the "Withdrawal/Transfer" form upon which they had neglected to put one little check mark showing a transfer to like IRA account.

My fingerprints are not on any of the cash involved. Checks were properly made out to the destination custodian groups. Should have been just a normal like to like transfer and no 1099's involved.

Just waiting now for them to get back to me. A classic case of "haste makes waste", with a lot going on that day and not making sure  each line item was correct.

[dmertz]

A relative of mine who I accompanied to the financial institution encountered a nearly identical situation where the front-office person marked the "Distribution" box instead of the "Transfer" box on the form despite us repeated telling the person "transfer, not rollover" every time the person said "rollover," and we didn't catch it on their unnecessarily complex multi-page form.  However, the check was made out to the new account properly so it indeed constituted a transfer.  An original Form 1099-R reporting a distribution got issued, but after pressing them to make the correction the back-office people issued a corrected Form 1099-R showing zero for the amount distributed, so nothing of it got reported on my relative's tax return and was never questioned by the IRS.  (We discovered later that the particular bank that was the culprit seems to have a history of messing up IRA transactions.)

Hopefully your situation ends up being a little simpler since you caught it earlier than we did.