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Email Consulting Guidance – Form 5498 Reporting for an Inherited IRA, Special Titling is Required

Email Consulting Guidance – Form 5498 Reporting for an Inherited IRA, Special Titling is Required

Posted by James M. Carlson
January 2022

Q-1. Hi Jim - a quick question regarding Inherited IRA and a 5498. Should the 5498 reflect that this is an Inherited/Beneficiary IRA in the name and address section? Our system produced the 5498 with the client name and address but not the “title” which would reflect the Inherited IRA language. I can see from a client’s perspective that this is confusing as they would not be able to tell if this 5498 was for their Inherited IRA or their regular IRA. I suppose true as well from the IRS standpoint?

A-1. IRS instructions are clear - the beneficiary indication is required on the 5498 form. Example, Sara Doe as beneficiary of Mother Doe’s traditional IRA.

I understand the IRS would have the right to fine the bank $50 (x two) because the Form 5498 has not been prepared as instructed.

I would want to research - when this information is being furnished to the IRS electronically is there to be the special titling. I would think it must have the special titling because how else does the IRS and the individual understand this is an inherited IRA.

Note that the instructions don’t make clear where the decedent’s info is to be shown.

Although the IRS does not have a similar requirement for the Form 1099-R, they should. When determining how an IRA distribution will be taxed a person does not aggregate personal IRAs and inherited IRAs. There must be separate calculations.

Example. Susan takes a distribution from her personal IRA, one with respect to her inherited IRA from her mother and one with respect to her inherited IRA from her sister. There must be three calculations and three different 1099-R forms. Susan may not understand things as well as she should if she is furnished three 1099-R forms issued to Susan. Admittedly, two will have a reason code 4 and one will have a 7.