Avoid Repayment and Postponed Contribution Reporting Confusion
By Jodie Norquist, CIP, CHSP
Staying on top of IRA reporting requirements can be challenging, and IRS Form 5498 reporting grows more complicated each year. Today, an increasing number of repayment and postponed contribution options must be reported on Form 5498, IRA Contribution Information, each requiring its own unique code.
What Are Repayment Contributions?
Repayment contributions are those amounts eligible for repayment to an IRA. They differ in important ways from rollovers, which also return money to an IRA. They may include repayments of a qualified reservist distribution or a qualified disaster distribution. New for 2020 tax year reporting are repayments for qualified birth or adoption distributions and coronavirus-related distributions (CRDs).
Repayment contribution amounts are reported on Form 5498 in Box 14a, Repayments. The applicable repayment code must be reported in Box 14b, Code. Possible repayment contribution codes that your financial organization may encounter for 2020 tax reporting include the following.
QR – repayment of a qualified reservist distribution
DD – repayment of a qualified disaster distribution
BA – repayment of a qualified birth or adoption distribution
IRA owners may make eligible repayment contributions in one or more deposits, as long as the aggregate contribution amount doesn’t exceed the qualified distribution amount. In most qualified distributions, the repayment period is three years, starting the day after the distribution was taken.
NOTE: As of this writing, the IRS had not issued the repayment code to be used for CRD repayments.
What Are Postponed Contributions?
Postponed contributions are IRA rollover contributions made in the current tax year but designated for a prior year for various reasons. These contributions may include late rollovers self-certified by the IRA owner, qualified plan loan offsets, and postponed contributions from taxpayers affected by federally designated disasters or for military personnel who served in a specific combat zone, hazardous duty area, or direct support area.
When financial organizations report postponed contributions, they should enter
the contribution amounts in Box 13a, Postponed/late contrib.,
the tax year for which the contribution is made in Box 13b, Year, and
the applicable military operation or event indicator code in Box 13c, Code:
SC – self-certification of a late rollover contribution
PO – qualified plan loan offset
FD – federally designated disaster
PL115-97 – Sinai Peninsula of Egypt
EO13119 (or PL106-21) – Yugoslavia operations area
EO13239 – Afghanistan and associated direct support areas
EO12744 – Arabian Peninsula areas
(The Instructions for Forms 1099-R and 5498 contain detailed descriptions for each zone or area.)
Avoid Misreporting
Unfortunately, it’s easy to misreport repayment and postponed contributions. The reasons vary. Staff may not be familiar with the codes or situations that require special reporting. If there are system limitations, these types of contributions may have to be entered manually, increasing the likelihood for errors. Print vendors print what is sent to them so any mistakes likely wouldn’t be caught until the forms reach IRA owner and the IRS. While misreporting may result in penalties, a more immediate concern may be the extra time and resources spent submitting corrected versions.
Ascensus’ Fully-Administered Program can take the worry of misreporting—and unnecessary errors—out of Form 5498 reporting. Using IRAdirect®, a secure online processing system with compliance logic, the Fully-Administered Program catches any reporting errors ahead of time to ensure that your tax reporting forms, such as Forms 5498, are accurate. Last January alone, Ascensus found well over 10,000 compliance errors in data submitted by financial organizations through its Fully-Administered Program for the current tax season. Those errors were corrected before the IRA owners received their tax forms.
Ascensus’ Fully-Administered Program also offers special contribution forms that allow you to walk through repayment or postponed contributions with your clients, and to enter the information directly into IRAdirect—without having to memorize or research what the codes mean. IRAdirect lists the options and code definitions in drop-down menus for easy form completion and prevents code mismatches.
As part of the Fully-Administered Program, once the forms are in compliance and ready, Ascensus files them with the IRS and applicable state agencies, and sends them to your clients. IRAdirect generates nearly 2.1 million tax reports each year.
Complete Support Is Available
Ascensus specializes in complete administrative, operational, and compliance support for IRA, health savings account (HSA), and education savings account (ESA) programs. With the Fully-Administered Program, Ascensus can provide your organization with the support you need to be efficient and keep your IRA, HSA, and ESA programs compliant. To learn more, call 800-356-9140.
IRAdirect® is a registered trademark of Ascensus, LLC.
