Form 5498 line 7

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  • #15300
    RustyShackleford
    Participant

    I understand that one can make traditional IRA contributions to a SEP-IRA. When one does so, is Line 7 of the 5498 supposed to have the “SEP” box checked or the “IRA” box ?

    What about when makes a recharacterization of a Roth IRA contribution as a traditional contribution into a SEP-IRA ? Or a recharacterization of a Roth conversion ?

    #15321
    Alan S.
    Participant

    Box 7 should have the IRA box checked. The SEP box is only for actual SEP contributions. Same for a recharacterized Roth contribution as a TIRA contribution. Note that recharacterizations cannot be done between SEP and non SEP contributions and since 2018 Roth conversions can no longer be recharacterized.

    Making a TIRA contribution to a SEP IRA may increase the chance that the custodian will make an error and show a SEP contribution that indicates participation in an employer plan. That could affect the deduction for the TIRA contribution and create a mismatch between the 5498 and the tax return. Therefore, if you plan on making a TIRA contribution to a SEP IRA, highlight that contribution as NOT being a SEP contribution.

    #15322
    RustyShackleford
    Participant

    That’s exactly what happened, prompting an IRS CP2000 notice. I’ve actually got a 5498 for my SEP-IRA, labeled 2019, that shows both:

    – in box 1, my 2019 TIRA contribution (which I made in early 2020)

    – in box 4, a recharacterization of my 2018 Roth contribution (I did the Roth contribution and the recharacterization both in early 2019)

    On line 7, the “SEP” box is checked. I’m not sure if that’s meant to refer to the line 1 contribution or the line 4 recharcterized contribution. I have persuaded brokerage to issue a corrected 5498, at least.

    #15323
    Alan S.
    Participant

    There is also a timing factor for the 5498. All SEP contributions are reported for the year in which they are made, while TIRA regular contributions are reported for the year FOR WHICH they are made. Recharacterized contributions (Boxes 4 and 7) are reported on a 5498 for the year the recharacterization is received. These variances explain why the IRS wants an explanatory statement for recharacterizations.

    #15336
    RustyShackleford
    Participant

    I guess that explains why my 2019 contribution, made in 2020, and my 2018 recharacterized contribution, made in 2019, both showed up in the same 5498 labeled 2019.

    As far as the explanatory statement, it appears the IRS doesn’t bother looking at those, based on the several CP2000’s I’ve received.

    Thanks much, Alan.

    #17847
    RustyShackleford
    Participant

    Alan, can you provide me with a reference/link for your statement:

    Box 7 should have the IRA box checked. The SEP box is only for actual SEP contributions. Same for a recharacterized Roth contribution as a TIRA contribution.

    Everything I can find just says that Box 7 specifies what type of IRA it is, not this finer point that a traditional contribution to a SEP-IRA should have the “IRA” box checked instead of the “SEP” box.

    I’m not sure Schwab is convinced that the 5498 they issued is wrong, and this might help convince them. Thanks !

    #18078
    Alan S.
    Participant

    Yes, Box 7 of Form 5498 reports the type of IRA, whereas certain other boxes are used to report the type of contribution. Normally, the type of IRA would correspond to the type of contribution, and a personal (non SEP contribution) can clearly be made to a SEP IRA. In such a situation Box 7 would show SEP but the contribution would be reported in Box 1.

    However, what about when a SEP contribution is made to a TIRA? Box 7? The 5498 Inst state:

    Box 7. Checkboxes
    Check the appropriate box.
    IRA. Check “IRA” if you are filing Form 5498 to report
    information about a traditional IRA account.
    SEP. Check “SEP” if you are filing Form 5498 to report
    information about a SEP IRA. If you do not know whether the
    account is a SEP IRA, check the “IRA” box.

    The custodian not knowing what type of account a SEP contribution is going to is a rare situation, possibly involving a prototype SEP or other SEP which is not an IRS form 5305 SEP. I guess the custodian should only show the type of IRA as a SEP when they know for sure that it is a SEP. I think there are situations where a SEP Contribution can be made to a non SEP IRA. For taxpayer purposes, I would just focus on the contribution type, not Box 7.

    I do not see any such conflicts for recharacterized contributions since no recharacterizations from TIRA to SEP or vice versa are allowed.

    #18432
    RustyShackleford
    Participant

    Oh, that makes sense – the type of contribution is implicit in which box the contribution amount is shown in (e.g. box 1 for TIRA contribution, box 8 for SEP contribution.

    So do I understand that you misspoke in 2nd post of this thread when you said “Box 7 should have the IRA box checked. The SEP box is only for actual SEP contributions” ? And therefore the 5498 I received is actually correct ?

    #20902
    RustyShackleford
    Participant

    Schwab’s tax people came back and said the original 5498 was correct, and I guess we agree with them – the SEP box checked on Line7 is correct, since it’s a SEP-IRA and the fact the contribution was shown on Line1 (instead of Line8) should’ve indicated to IRS that it was indeed a TIRA contribution.

    #20957
    Alan S.
    Participant

    Yes, it is correct. The actual contribution type boxes are more important, and initially in post 2 I had forgotten that an IRA type box even existed, since it is optional for custodians and may serve as another checking mechanism that the custodian has the contribution box correct. Fact is, a TIRA contribution can be made to a SEP IRA (happens quite often) as you did, or a SEP contribution can be made to a TIRA (very rarely done), since a SEP IRA is just a TIRA with special contribution provisions that become extraneous once a business is closed.

    Again, I think box 7 is intended to make the custodian think twice that the correct contribution type was reported.

    #21051
    RustyShackleford
    Participant

    Makes sense, thanks Alan.

    Even though the 5498, showing recharacterization of my 2018 Roth contribution (made and recharacterized in early 2019) should’ve been available to IRS when they sent my CP2000 (earlier this year).

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