You Have Form 5498 and HSA Questions – We Have Answers

Just when you thought tax season was over… you get another form in the mail. If this happens – don’t panic! Many people are unaware of Form 5498 and when it comes in the mail, they immediately think they did something wrong on their taxes. If this sounds like you, don’t worry, you didn’t!

What is Form 5498?

The Form 5498 is a reporting tool to the IRS to let them know the contributions that you made to your individual retirement arrangements (IRS), health savings accounts (HSA) and Coverdell Education Savings Account (ESA). The financial institution that is the keeper of each of these savings accounts will send you a Form 5498. Meaning, if you have multiple of these accounts with the same or various financial institutions you should expect to receive one for every account you own. You’ll be able to tell which form goes with what type of account by the label:

• Form 5498, IRA Contribution Information will have information on any type of retirement account you have such as a traditional IRAs, Roth IRAs, SEP IRAs and SIMPLE IRAs.

• Form 5498-SA indicates it’s reporting information an HSA.

• Form 5498-ESA indicates it’s reporting information on an ESA.

You can find detailed instructions for the Form 5498 on the IRS website.

Why am I getting this now… after tax season?

Great question. These financial institutions have 2 deadlines to get you these forms depending on your circumstances:

• January 31st

  • Many of these plans have a required minimum deduction that occurs starting at the age of 70 ½.  If you fall into this category then you will receive this form at the end of January.

  • If you are turning 70 ½ in the next tax season take a look at box 11 on your form. It will be checked as a reminder that you should begin taking out required minimum deductions no later than April 1 of the year following the one which you turn 70 ½. If you don’t take required deductions there are financial penalties that occur.

• May 31st

  • If you are not at the point of needing to take required minimum deductions because you’re under the age of 70, then your financial institution has until May 31st to get you this form. Keep in mind, any money you contributed up until April 15th will be included.

What does this mean if I’ve already filed my tax return?

If you already filed your return that fantastic because it means you likely filed on time! Through the tax filing process, you would have been prompted to provide this information. This form mostly serves as backup confirmation of the information you’ve already provided the IRS. However, it is a good idea to double check to make sure your numbers match. If you discover they don’t then you may need to file an amended return. If you aren’t sure whether you need to amend your return or not, give us a call. We are happy to take a look, provide some clarity and help through the process.

Speaking of HSAs… should I really have one?

A health savings account is something you can pair with a high deductible health insurance plan to cover qualifying medical expenses that tend to arise with these types of plans. It’s especially appealing because the money that is moved to an HSA is all pre-taxed. There are a lot of substantial benefits to having an HSA:

• It’s likely the only way most of us will “deduct” out of pocket medical expenses.

  • When it comes to deducting medical costs from your taxes, you can only deduct the total unreimbursed allowable medical expenses that exceeds 10% of your adjusted gross income – ouch.

  • The only variation to this is if you are over the age of 65 then you can deduct what exceeds 7.5% of your adjusted gross income.

• It’s a great tax deduction. You are just moving money from on account to another and saving taxes in the process.

• Your funds carry over year over year. This isn’t a use it or lose it situation. If you didn’t need your whole HSA savings this year then it rolls over and will be there for you if you have larger medical expenses next year.

• If your employer doesn’t offer one, you can get it on your own. You must have a High Deductible Health Plan (HDHP) but if you do and your employer isn’t offering an HSA to go with it, you can get one separately. We recommend checking out credit unions first because they likely don’t have a fee for the account like many big banks do.

DOWNLOAD OUR COMPLETE HSA GUIDE FOR MORE DETAILS

Last year, Melissa Laverty of Tax Services of Londonderry, met with a client who said, “They talked about HSAs during open enrollment at work but I wasn’t really listening and don’t know much about them.” Later in the conversation he complained about having $5,000 worth of dental work coming up. Mel was able to walk him through the process of setting up an HSA with a local credit union and was able to fully fund it for the prior year because it was before April 15th. His total savings was over $1,800 and he had enough time to file his taxes and use his refund dollars to fund the HSA.

All of these pieces of a very confusing puzzle can be overwhelming when you don’t live and breathe these details every day as we do. It can feel easier to tune it out or ignore it rather than learn all about it. You don’t need to be an expert to make great choices and handle all the paperwork – you just need an expert in your back pocket. If you have questions about a Form 5498 that you received, if you aren’t sure if you need to amend your return or you’re looking to learn more about HSAs, give us a call, 603-432-8291. That’s what we are here for.

Powered by Weatherby Media LLC