Guide to IRA Tax Documents and Forms

Tax-advantaged accounts like IRAs and Health Savings Accounts allow you to save for the future by deferring taxes on your investment earnings. However, the IRS requires annual reporting to track fair market values and movements of account-held cash and assets. New Direction Trust Company performs this service as your account custodian, but, as the account owner and tax filer, it’s important that you understand the various tax filings and IRA tax documents that may be associated with your self-directed plan.

Form 5498 – IRA Contribution Information

NDTCO generates Form 5498 once a given tax year is over. We will submit one copy of Form 5498 to the IRS and provide you with a participant copy following the tax filing deadline. You will receive one Form 5498 for each account you hold.

Form 5498 reports two pieces of information: The fair market value of your account and contributions from the prior year.

Fair Market Value

The IRS needs to know the value of your account holdings on an annual basis. Although we submit Form 5498 to the IRS on behalf of your account, we need your assistance in identifying the fair market value it reports.

Assets like real estate, private equity, and other such alternatives must be independently valued. If, for instance, your IRA owns a home and rents it out, you could solicit the services of a real estate agent, submit a copy of the county assessment, or utilize a similar third-party source to value the property.

To submit a fair market valuation to New Direction Trust Company:

On your list of Private Market Assets, you should see the option to either “Valuate” or “Take Action” and then “Valuate.”

Click “Valuate” and provide the requested information.

Attach supporting documentation by clicking “Choose File(s).”

Some assets may not require you to submit independent fair market value information. These assets include:

Precious Metals – For the purpose of Form 5498 reporting, we automatically apply the cumulative spot price of your account-owned precious metals as of December 31, the prior calendar year.

Promissory Notes – For the purpose of Form 5498 reporting, we automatically apply the remaining balance due (principal and interest) as of December 31, the prior calendar year as the fair market value of a promissory note.

Please bear in mind that these fair market valuation practices also apply in the unfortunate case of a zero-valued asset. Completing the zero-value process can help alleviate tax burdens associated with the asset.

Contributions

The IRS also records annual contributions. Depending on your account type, contributions can provide considerable tax advantages (e.g. income tax deductions) even before making an investment. All accounts also carry limits on how much holders can contribute each year. To fund your account and qualify for tax benefits, the IRS must ensure that you’re following contribution rules.

Form 1099-R – IRA Distribution Information

As with Form 5498, New Direction Trust Company will send Form 1099-R to the IRS and provide a copy for your records in January for the prior tax year.

However, a Form 1099-R will only be issued if you took a distribution.

Your Form 1099-R will show your gross distributions from the prior year, the taxable amount, and any taxes you withheld. You will receive one 1099 that will show the sum of all distributions from an account, and another for each account you took distributions from.

You’ll receive a Form 1099-R even if you took distributions from a post-tax account like a Roth IRA. Even though qualified Roth distributions are tax free, withdrawal activities are still reported to the IRS.

Whether your distributions are taxed as income (as with a Traditional IRA) or tax free (as with a Roth IRA, if qualified), the IRS keeps an eye on withdrawals from your account. If your distributions are taxable, simply add the distribution amount to your income for the year. You do not need to submit a separate filing to pay taxes on distributions.

Important Information About Rollovers

If you executed a rollover in the prior tax year, you will receive a Form 1099-R from your issuing custodian that reports the rollover distribution. You will also receive a corresponding Form 5498 from your receiving custodian to report the subsequent rollover contribution.

If you rolled funds from an employer plan into a self-directed IRA with NDTCO, you will receive a Form 1099-R for the rollover distribution. This is true even though you didn’t retain the funds outside of a qualified plan. This 1099 will come from your other plan administrator because that’s where the cash or assets came from.

A rollover distribution that isn’t re-deposited into a qualified account within 60 days will be considered a regular distribution, for which any applicable taxes and penalties may apply. Matching amounts on Forms 1099-R and 5498 communicate to the IRS that a proper rollover has taken place. As long as the full distributed balance is re-deposited into a qualified plan within 60 days and the amounts on the 1099 and 5498 match, you won’t owe any taxes on your rollover distribution.

Schedule K-1

A Schedule K-1 reports income from certain assets under specific circumstances. If you receive a Schedule K-1, your account may have earned passthrough income from an operating business or rental income.

Passthrough Income from an Operating Business

“Passthrough” income refers to investment returns that were not taxed at the corporate level. An “operating business” actively produces and offers goods or services.

So, if your self-directed IRA invests in an operating business that doesn’t pay taxes at the corporate level, that un-taxed income will be reported on a Schedule K-1.

Rental Income

A Schedule K-1 may also report rental income, either from real estate or another type of property (e.g. your account could own equipment and lease it to businesses).

What Does This Mean?

These nuanced situations may carry additional ramifications for your plan. Click here to learn more if you received a Schedule K-1 for your account.

Account Statements

Though not technically a tax form, your NDTCO account statement can help you get your affairs in order. Your Annual Account Statement will highlight your account activities includes details such as the opening balance, any contributions made to the account, assets held in your account, investments purchased or sold, dividends received, any fees charged, and the closing balance at the end of the year. This information may be needed to complete taxes or Required Minimum Distributions.

Annual Statements will be available on the Documents dashboard in the NDTCO Portal toward the end of February.

You may generate a statement anytime by clicking 'Generate Statement' in the top right corner on your portal overview page of your account.

If you’ve elected to receive a mailed annual account statement, you can expect to receive both a paper statement in the mail and a statement through your NDTCO portal. Please note that if you’ve opted to receive a paper statement, a paper statement fee will be applied to your account. You may opt out of mailed annual account statements by updating your preferences online through your NDTCO portal Profile under Notification Preferences.

Knowledge is Power!

Tax time can be daunting, but New Direction Trust Company is here to help answer any questions you have about your IRA tax documents. Feel free to give us a call at 877-742-1270 or send us a message through the NDTCO Portal.