When I take an IRA distribution by a lump sum check made out to me after my CD matures, I understand that the financial institution must report this as a distribution on an IRS Form 1099-R and I get a copy.
Then when I open a new CD at another institution
within the 60 days allowed, I understand that the new receiving financial institution
reports to the IRS on an IRS Form 5498 to show that there was an IRA contribution
made -- and I get a copy of that as well.
I am somewhat confused
as to how the IRS knows that the contribution to the new institution happened
within the 60 day allowable period (to be tax-free) if the Form 5498 does not
show the date of the IRA funds deposit. Does the IRS just rely on the taxpayer's
word that the rollover occurred within the allowable 60-day time period? I would
like to do a 60-day rollover and want to be sure it's done right.
Believe it or not our tax system is based on the principle of
the taxpayer's honesty. However, sometimes the IRS checks with others on what
you earned or spent.
Forms 1099-R and 5498 do not show the
dates that the funds were distributed and redeposited, respectively. However,
an IRA custodian that accepts a rollover contribution should ask you to prove
that the redeposit occurs within 60 days of the withdrawal. If you cannot show
this to the custodian, then it most likely will not accept the contribution as
a rollover contribution.