Stay On Top of IRA Repayment and Postponed Contribution Reporting Requirements
By Jodie Norquist, CIP, CHSP
IRA reporting requirements seem to grow more complicated each year. Today, financial organizations must not only report IRA contributions on Form 5498, IRA Contribution Information, but they must also report an increasing number of repayment and postponed contribution options, each requiring its own unique code.
Reporting Repayment Contributions
Repayment contributions are different than rollovers, which also involve a return of money to an IRA. Repayment contribution amounts are reported on Form 5498 in Box 14a, Repayments. The applicable repayment code should be reported in Box 14b, Code. Individuals may make repayments of qualified reservist distributions, qualified disaster distributions, qualified birth or adoption distributions, or coronavirus-related distributions (CRDs).
As you prepare for your annual IRA reporting requirements, you may notice an uptick in CRD repayments submitted by your clients in 2021. In 2020, the IRS allowed IRA and retirement plan account owners to take up to $100,000 in penalty-free CRDs. Those who took CRDs may repay these distributions into their eligible retirement accounts ratably over three years. Although we don’t have official reporting guidance, Ascensus has received unofficial IRS guidance on how financial organizations should report CRD repayments. In Box 14a of Form 5498, enter the CRD repayment amount and enter the repayment code, “DD” in Box 14b.
Other possible repayment codes your financial organization may encounter for 2021 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
In most cases, the repayment period for qualified distributions is three years, starting the day after the distribution was taken. Currently, there is no official repayment deadline for qualified birth or adoption distributions. Although the statute implies that there is not a repayment deadline, more guidance is expected.
Reporting Postponed and Late Contributions
Postponed contributions are IRA rollover contributions made in the current tax year that are designated for the prior year. These contributions may include late rollovers self-certified by the IRA owner, qualified plan loan offsets paid to an IRA beyond the standard 60-day rollover period, and postponed contributions for individuals affected by federally designated disasters or for military personnel who served in a specific combat zone, hazardous duty area, or direct support area.
Postponed contribution amounts should be entered in Box 13a, Postponed/late contrib., with the tax year for which the contribution is made in Box 13b, Year, and the applicable event indicator code or military operation code in Box 13c, Code.
Postponed contribution codes include
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.)
Repayments and Postponed Contributions Can Easily Be Misreported
As Form 5498 reporting continues to show increased repayments and varying repayment codes, it’s easy for mistakes to occur. Special reporting may need to be done manually if processing platforms are not automated for these codes, and sometimes staff may not be familiar with how to report them and what codes to use. While mistakes, if caught early enough, may be corrected, it can cost your financial organization valuable time and resources to submit corrected reporting.
Ascensus’ Fully-Administered Program can take the stress out of your 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. In January 2021, for example, Ascensus discovered over 10,000 compliance errors in data submitted by financial organizations through its Fully-Administered Program. These errors were corrected before the IRA owners received their tax forms.
Your staff doesn’t need to memorize or research what the repayment or postponed contribution codes mean. With Ascensus’ Fully-Administered Program, your staff can use special contribution forms to walk through repayment and postponed contributions with your clients and enter the information directly into IRAdirect. Drop-down menus make for easy completion, offering code definitions and preventing code mismatches through the form completion process. Once the forms are compliant and ready, Ascensus then files the proper forms with the IRS and applicable state agencies and sends them to your clients as part of the Fully-Administered Program.
To learn more about how Ascensus’ Fully-Administered Program may assist your financial organization in complete administrative, operational, and compliance support, call 800-356-9140.
