Establishing an individual retirement account (IRA) provides many tax advantages. The contributions may be deductible from income and generally the earnings and gains will not be taxed until distributed. However, in order to obtain these tax advantages, the account holder must ensure that: (i) the accounts are properly invested and not maintained in the type of investments prohibited by the Internal Revenue Code, such as collectibles (including art, antiques and gems) or life insurance; and (ii) the IRA does not engage in a prohibited transaction. The Internal Revenue Service (IRS) has proposed a significant change from the current reporting requirements in an effort to monitor IRAs, to ensure that they are being invested properly and that the IRA has not engaged in a prohibited transaction.
The custodian of an IRA must file Form 5498 with the IRS (with a copy to the IRA owner) for each person for whom it maintained any IRA. The form must be filed by May 31 of each year. Currently, Form 5498 does not require the custodian to report how the assets of the IRA are being invested. However, according to an announcement by the IRS and the draft instructions for the 2014 Form 5498 (the actual draft form having yet to be released), commencing in 2014, two new boxes (15a and 15b) will be added to Form 5498. It will be optional in 2014 and mandatory thereafter for the custodian to report in such boxes the fair market value of certain investments in the IRA in specific categories listed using a code as follows:
