SoFi

The interest you’ll pay on a home equity line of credit (HELOC) is typically calculated by multiplying the daily interest rate by the average daily balance for the billing cycle. (This is called the average daily balance method.) The lower your daily balance, the less interest you’ll pay.

The variable nature of a HELOC interest rate is a big factor in this equation. Many HELOCs allow for interest rate adjustments once a month — so the amount of interest you pay varies from month to month, based on both your balance owed and your rate.

U.S. households had more than $396 billion in outstanding HELOC balances at last count, so plenty of homeowners are looking to minimize the amount of interest they pay. If you’re one of them, here’s a rundown of how interest is calculated on a home equity line of credit so you can take steps to minimize your costs whenever possible.

Basics of HELOC Interest Rates

To understand how does HELOC interest work and how much interest you’re being charged, it’s helpful to know the basics of how HELOC interest is calculated. Home equity line of credit interest rates are usually variable, so they can move up or down based on market conditions. Your monthly payment changes as a result. There is usually an interest rate ceiling and floor on a HELOC, which govern the highest and lowest the interest rate can go on your loan — so there are some controls built into this process.

How are HELOC rates calculated? The interest rate you pay is made up of two parts: the prime rate and a lender’s profit margin.

The lender’s margin stays the same throughout the life of your loan, but the prime rate can fluctuate based on market conditions.

HELOC Interest Calculation Methods

There are a few different ways your lender can calculate interest, though the average daily balance method is the one you’ll most likely see.

Average daily balance: An average daily balance calculation involves finding the average daily balance for the month and then multiplying it by the interest rate. This is the most common HELOC interest calculation method.

Adjusted balance method: The adjusted balance is where the lender subtracts any payments you made during the period to calculate interest charges from the “adjusted balance.”

Previous balance method: In this method, the lender uses the amount owed at the beginning of the period to calculate interest charges.

Recommended: What Is a HELOC?

Factors Affecting HELOC Interest Calculations

Several factors affect HELOC interest calculations. These include your annual percentage rate (APR), the extent to which you use your credit line, and whether you’re in the HELOC’s draw or repayment period.

APR

As mentioned previously, one of the defining characteristics of a HELOC is the variable APR, which can change over the course of the term. For many HELOC lenders, the interest rate can be adjusted once per month. But you still want to obtain the lowest possible interest rate at the outset of your line of credit.

Your personal qualifications and the attributes of your property and loan are the biggest factors in determining your APR. Some of these include:

•   Credit history: Your credit score and credit history factor into the interest rate your lender will offer you. A better credit score translates into a better interest rate on your loan.

•   Line amount: How large your HELOC credit line is will affect your interest rate.

•   Equity: Generally, the more equity you leave in your home, the better interest rate you’re eligible for.

•   Occupancy: An owner-occupied property typically gets a lower HELOC interest rate than an investment property, although some people do use HELOCs to fund investment properties because they think they can use a HELOC to build wealth.

Of course, it’s recommended to always shop around for a HELOC to ensure you find your best available rate.

Recommended: HELOC vs. Home Equity Loan

Credit Utilization

Lower charges on your HELOC create lower interest charges because with a HELOC, you only pay interest on what you borrow. A HELOC payment calculator can help you estimate what your monthly payment would be on your HELOC based on how much of the credit line you have used and your interest rate.

Draw vs. Repayment Period

With many HELOCs, there is a draw period and a repayment period. The draw period is where your minimum payment covers the interest charged on the loan. The repayment period is where you pay principal and interest in installment payments.

When it comes to the interest charges during the draw vs. the repayment period, the calculation is the same, but the interest rate may be different. The main difference is the principal doesn’t go down if you’re making interest-only payments during the draw period. Some borrowers may also have a fixed interest rate when they enter the repayment period.

Sample HELOC Interest Calculations

It’s helpful to look at the process of calculating HELOC interest rates and see a couple examples to understand how it works. Here’s a complete breakdown of the most common method for calculating HELOC interest, the average daily balance. Yes, it’s a lot of math — but if you have a HELOC, your lender runs the numbers for you and sends you a monthly bill.

Step 1: Find the Average Daily Balance

Add each day’s balance together, then divide by the number of days in the billing cycle.

Example 1: You have a $10,000 balance for each of the 30 days of the billing cycle.
Average daily balance = ($10,000 X 30 days) / 30 days
Average daily balance = $10,000

Example 2: You have a $10,000 balance for two days into the billing cycle and then pay it off. Average daily balance = ($10,000 + $10,000) / 30 days
Average daily balance = ($20,000) / 30 days
Average daily balance = $666.67

Step 2: Find the Daily Periodic Rate of Your HELOC

To find the daily periodic rate of your HELOC, divide the APR on your statement by 365.

Example: Your APR is 9.49%
Daily periodic rate = 9.49%/365
Daily periodic rate = .026%

Step 3: Find the Daily Interest Charge

You’ll find the daily interest charge by multiplying the average daily balance by the daily periodic rate.

Example 1: $10,000 average daily balance with a .026% daily periodic rate.
Daily interest charge = $10,000 X .026%
Daily interest charge = $2.60

Example 2: $666.67 average daily balance with a .026% daily periodic rate.
Daily interest charge = $666.67 X .026%
Daily interest charge = $.17

Step 4: Find the Total Interest Charges for the Billing Cycle

Multiply the daily interest charge by the number of days in the billing cycle. For this example, we’ll use 30.

Example 1: $10,000 average daily balance
Total interest charges = $2.60 X 30
Total interest charges = $78

Example 2: $667.67 average daily balance
Total interest charges = $.17 X 30
Total interest charges = $5.10

In this side-by-side comparison, the borrower who paid off the balance after two days saved over $70 in interest costs for the month.

Strategies to Minimize HELOC Interest Costs

Paying less interest is a smart move if you can swing it. If you need to use your HELOC to finance a large expense, keep these tips in mind to help you save on interest.

Make purchases toward the end of the billing cycle. With the daily balance interest calculation, you want to minimize the number of days you’re paying interest on a purchase. If possible, make purchases with your HELOC toward the end of your billing cycle and make payments shortly thereafter.

Pay earlier in the billing cycle. Since the interest is calculated daily based on the money you still owe, paying it earlier in the billing cycle can reduce the amount of interest you’ll pay. And if you can pay down the principal (as in example 2, above), even better.

Make extra payments. Extra payments reduce the principal, which reduces how much interest you’ll pay.

Convert to a fixed-rate loan. Converting your HELOC into a fixed-rate loan could lower your interest costs if you can lock in a lower interest rate. And even if you can’t, converting to a fixed rate protects you from further rate increases and ensures you have a predictable payment amount from month to month going forward.

Recommended: How HELOCs Affect Your Taxes

Comparing HELOC Interest to Other Borrowing Options

Here’s how a HELOC stacks up against home equity loans, personal loans, and credit cards.

Home Equity Loan

This is a different type of home equity loan that offers a fixed interest rate. Like a HELOC, it uses your home’s equity as collateral, but unlike a HELOC, with a home equity loan you receive your funds in a lump sum upfront and start repaying the principal, plus interest, immediately.

If you’re comparing interest rates on a HELOC vs. home equity loan, you’ll typically see lower interest rates in HELOCs initially, but over the years, a HELOC can adjust many times, whereas a home equity loan will always have the same interest rate.

Personal Loan

A personal loan usually has a higher interest rate than either HELOCs or home equity loans. However, your home isn’t used as collateral on the loan, which is a big upside. In early 2025, the average interest rate for personal loans was over 12%.

Credit Cards

Credit cards have significantly higher interest rates than either HELOCs or personal loans. Average credit card interest rates in early 2025 are over 21%. They’re very flexible, but shouldn’t be relied on as a lending tool because of the high interest rates.

The Takeaway

Paying less interest on your HELOC is a smart move for your finances. If you know how is a home equity line of credit interest calculated, you’ll understand how much you’re paying for borrowing money on a HELOC and use smart strategies to pay less. You might also give yourself a head start by paying more than the interest-only payment during the draw period, so that by the time you enter the repayment period, you’ve chipped away at your balance and lowered your payment amount.

SoFi now partners with Spring EQ to offer flexible HELOCs. Our HELOC options allow you to access up to 90% of your home’s value, or $500,000, at competitively lower rates. And the application process is quick and convenient.

FAQ

How often does a HELOC interest rate change?

HELOCs are typically variable-rate loans, and while it’s up to the lender to determine how often they change, the rate can change each month. Some HELOCs offer the option to lock in a certain amount borrowed, and the portion you’ve locked becomes a fixed-rate loan with a repayment schedule.

Can I deduct HELOC interest on my taxes?

There are a few scenarios where you can deduct HELOC interest on your taxes. If you use the funds to buy, build, or improve your residence, the interest is tax deductible. However, you would need to itemize your deductions, so consult with a tax advisor. This deduction may change after the 2025 tax year — another good reason to speak with an advisor.

What’s the difference between simple and compound interest for HELOCs?

The daily balance method used by HELOCs is considered simple interest. Compound interest is where interest is charged on top of interest, which isn’t a common way of computing interest for HELOCs. All of the specifics about your HELOC — including your interest rate, how often the variable rate may change, and your rate floor and ceiling, among other things — should be spelled out in your HELOC agreement.

Photo credit: iStock/Prostock-Studio

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

SOHL-Q125-077

A home equity loan, or HELOC, is a revolving line of credit that’s secured by your home. You can use a HELOC to access the equity you have in your home, which is the difference between what you owe on your home and what it’s worth.

It’s possible to get a HELOC on an investment property if you meet a lender’s requirements. There are both pros and cons to using a home equity line of credit on an investment property, which is important to understand before moving forward.

Understanding HELOCs for Investment Properties

An investment property HELOC is a home equity line of credit that’s secured by an investment property that generates income. This might be a home that you exclusively rent out full-time or one that you rent seasonally.

Typically, when someone gets a HELOC, they borrow against their primary residence (the home they live in). Your home secures the HELOC, and the amount you can borrow is based on your credit scores and the amount of equity you have.

An investment property equity line of credit works much the same way, but the difference is that it’s tied to your rental home. You might tap into your investment property equity using a HELOC to:

•   Fund renovations or repairs on the property

•   Consolidate high-interest debts

•   Pay for a large expense

•   Cover a financial emergency

Investment property HELOCs, like HELOCs generally, have a draw period of 5 to 10 years, in which you can access your credit line. This is followed by a repayment period that may last 5 to 25 years.

Recommended: HELOC Definition

Eligibility Criteria for Investment Property HELOCs

Qualifying for a HELOC on a primary residence usually isn’t that different from getting a home loan to buy property. Getting a HELOC for investment property, however, may entail jumping through a few additional hoops.

Equity Requirements

The first requirement for a home equity loan or HELOC on investment property is equity. (Again, equity is the difference between what you owe on the home and what it’s worth.) Lenders use something called the loan-to-value (LTV) ratio to measure your home equity. Your LTV ratio is the amount you’re financing compared to what your home is worth.

Typically, lenders look for an LTV ratio of 85% to 90% if you’re getting a HELOC on a primary residence. So you’d need 10% to 15% equity to qualify.

The required LTV for a HELOC on investment properties, on the other hand, might be 75% or 80% instead. Essentially, you’d need more equity to qualify.

Why? Because it’s a riskier loan for the lender. If you were to experience financial hardship, you would likely want to preserve the home you live in and would prioritize payments on that mortgage above those on your investment property.

A HELOC on rental property, like any HELOC, is a junior lien — which means that it takes a backseat to first mortgage liens for repayment. So if you did lose your investment property to foreclosure, your first mortgage on the property would get paid off from the proceeds of the sale before a HELOC lender would be paid. Read our detailed HELOC loan guide to learn more about this borrowing option.

Credit Score Standards

A credit check is typical for a home equity line of credit. For most mortgages, including HELOCs, lenders look for a FICO® credit score of 620 or higher. (FHA loans accept borrowers with scores as low as 500.)

Credit score requirements may be higher for HELOCs, however, since there’s more risk for the lender. So you may need a score of 670 or better to qualify. That’s a “good” credit score, according to FICO.

If your credit could use some improvement, focus on paying bills on time and reducing your overall debt levels. You could also improve your credit utilization by requesting higher limits for your credit cards. Just don’t run up more debt against your new limit.

Property Type and Condition

Aside from your finances, lenders also scrutinize the property when deciding whether to approve a HELOC on an investment property. An in-person appraisal may be required to assess its condition and make sure that it’s an eligible property type.

Since the home secures your HELOC, the lender will want to make sure that it’s accurately valued and in good shape. The lender may also ask questions about your tenants and leasing agreement to assess how consistent your rental income is.

Pros and Cons of Using a HELOC on an Investment Property

Should you get a HELOC for an investment property? There are some compelling reasons to consider it, but there are downsides as well. It’s important to weigh both sides before making a decision.

Advantages

Here’s what a HELOC on a rental property has to offer, in terms of benefits.

•   Convenience. A HELOC offers flexible access to cash for home improvements, emergencies, or any other reason.

•   Low rates. HELOCs may be less expensive than other borrowing options, such as personal loans or credit cards.

•   Possible tax deduction. You can deduct the interest you pay if you’re using a HELOC exclusively to renovate or repair your investment property.8 This rule may change after the 2025 tax year; consult a tax advisor about all deductions.

•   Lower payments initially. You may only have to make interest payments in the draw period.

•   Less risk. If you experience a significant financial setback and default on the line of credit, at least you aren’t risking your primary residence.

Disadvantages

Getting a HELOC on investment property isn’t always the right move. Here are some downsides of an equity line on investment property to consider.

•   Difficult to qualify. Not all lenders offer HELOCs for rental properties and it may be challenging to find one that will approve you.

•   Unpredictability. If you have a variable-rate HELOC, your interest rate is subject to change, which could make your payments less affordable if rates rise.

•   Cost. Lenders may charge higher interest rates or higher fees for HELOCs on investment property, adding to your overall cost.

•   Shrinking equity. Taking out a HELOC reduces your available equity, which could put you at risk of becoming upside down if home values decline.

•   Less flexibility. Any balance owed on a HELOC often needs to be paid when you sell the house. This might affect how quickly you can sell your investment property should you wish to do so.

Alternative Financing Options

A HELOC isn’t the only way to get cash when you need it. You might consider other possibilities, including:

•   HELOC on your primary home. If you can’t get a HELOC on an investment property, you may still qualify for one on the home you live in. Shopping around to compare mortgage rates can help you see what you might qualify for.

•   Personal loans. Personal loans let you borrow a lump sum of money, and unlike a HELOC, they aren’t tied to your home.

•   Credit cards. Credit cards could be a good alternative to a HELOC if your card has a low rate or you’re earning generous rewards when you spend. For instance, you might use a card that earns cash back at home improvement stores to save money on remodeling projects.

•   Cash-out refi. A cash-out refinance replaces your existing mortgage loan with a new one. You take your equity out in cash at closing. This could be a simpler way to get access to funds and potentially lower your rate and/or monthly payments.

Recommended: Mortgage Preapproval

Steps to Obtain a HELOC on an Investment Property

Getting a HELOC on a rental property takes some planning. Here’s what you’ll need to do.

Assess Your Financial Situation

First, look at where you are financially. Consider your:

•   Credit scores

•   Income

•   Existing debt (including mortgage payments for your primary residence, rental property, and credit cards)

•   Budget and expenses

•   Home equity

•   Borrowing needs

You can use a home equity calculator to gauge whether you have the right LTV required to get a HELOC on an investment home. A HELOC repayment calculator can help you estimate how much of your budget might go to payments. If you haven’t checked your credit, you can pull your reports for free through AnnualCreditReport.com or with free credit monitoring.

Prepare Necessary Documentation

If you think a HELOC is the right move, the next step is organizing your documents. Generally, you’ll need to have copies of your:

•   Pay stubs

•   W-2s

•   Tax returns for the most recent year

•   Bank account statements

If you’re self-employed, your lender might ask for a profit and loss statement and cash flow statement. You may also need to provide two years’ worth of tax and income statements versus one.

Submit Your Application

Assuming you’ve chosen a lender, the next step is applying. If you’re applying for a HELOC online, you should be able to upload any supporting documentation the lender requests.

As you go through the application, complete all required fields and double-check for accuracy. Once you submit your application, the lender will take the next steps which are checking your credit and scheduling an appraisal.

You’ll need to pay the appraisal fee, along with any other closing costs. The appraisal fee is usually due upfront, while other fees can be paid on closing.

The Takeaway

Getting a HELOC on an investment property can unlock extra cash, but it may not be suitable for every situation. Before you move forward with a home equity line of credit, it’s important to know what you can expect and how a HELOC tied to an investment property is different from one tied to your primary home.

SoFi now partners with Spring EQ to offer flexible HELOCs. Our HELOC options allow you to access up to 90% of your home’s value, or $500,000, at competitively lower rates. And the application process is quick and convenient.

FAQ

What are the typical interest rates for HELOCs on investment properties?

HELOCs on investment properties tend to have higher interest rates than HELOCs on primary residences, or mortgages used to buy a home. You may pay several percentage points more to borrow, and it’s entirely possible to see double-digit HELOC rates.

Are there tax implications when using a HELOC on an investment property?

You might be able to deduct the interest you pay on a HELOC for your rental property if you’re using the money for repairs or improvements. You’ll need to consult a tax advisor, however, and be mindful that this rule may change after the 2025 tax year.

How does a HELOC on an investment property affect my credit score?

HELOCs show up on a credit report. When you apply for a HELOC, it adds an inquiry to your report, which can knock a few points off your score. As long as you pay your HELOC on time, however, you can get those points back.

Can I use a HELOC from my primary residence to fund an investment property?

You can use a HELOC from your primary residence to fund an investment property, but it isn’t always easy. Lenders may be more stringent with credit, income, and equity requirements when you borrow against your primary home to buy a rental home.

What are the risks associated with taking a HELOC on an investment property?

The primary risk associated with getting a HELOC on an investment property is losing the home to foreclosure. If you can’t manage the added debt load or your rental income dries up, you could risk the loss of the property if the bank takes it back.

Photo credit: iStock/gorodenkoff

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

SOHL-Q125-070

IRS Form 5498 is used to report IRA contributions to the IRS. The financial institution (often referred to as the trustee or custodian) that manages your IRA should send a 5498 tax form to the IRS on your behalf each year that you make contributions. They’ll send a copy of the form to you as well.

This form is designed to be informational for taxpayers and you don’t need to file a copy of it with your tax return. However, it’s helpful to know how to read IRS Form 5498 if you’re using it to keep track of your annual IRA contributions.

What Is IRS Form 5498?

IRS Form 5498, IRA Contribution Information is an official tax form that’s used to report individual retirement account contributions to the IRS. This form is issued by your IRA trustee or custodian and is sent directly to the IRS each year that you make contributions to your account.

You’ll also receive a copy of your Form 5498 in the mail, but the form is purely informational. You won’t need to file it with your federal or state tax returns. However, it’s a good idea to keep a copy of it with your tax records for the year.

💡 Need a refresher? Check out our guide: What Is an IRA?

What Does Form 5498 Cover?

A 5498 tax form is used to report information about the annual contributions you make to your IRAs, including traditional IRAs, Roth IRAs, SIMPLE IRAs, and SEP IRAs. You should get one form from each IRA custodian that you have accounts with. You may also be issued a Form 5498 for certain other transactions that are IRA-related, such as rollovers and required minimum distributions (RMDs).

Your IRA custodian or trustee must file Form 5498 with the IRS by May 31 following the year in which the contributions were made.

IRA Contributions

The 5498 tax form is used to report IRA contributions. The information is recorded in different boxes on the form, depending on the type of contribution it is.

•   Box 1: IRA contributions

•   Box 8: SEP IRA contributions

•   Box 9: SIMPLE IRA contributions

•   Box 10: Roth IRA contributions

When you receive your 5498 tax form, it’s a good idea to compare the contribution amounts listed there to the amounts you reported on your tax return. If you spot any errors, you can reach out to your IRA custodian to request a corrected form.

Form 5498 records both deductible and non-deductible IRA contributions. If you’re using a Roth IRA to save for retirement, for example, tax deduction rules don’t allow you to write off those contributions. But you’ll still get a 5498 tax form showing what you contributed for the year.

Type of IRA

As mentioned, Form 5498 reports contributions to different types of IRAs. So, you may receive this form if you make contributions to any of the following:

•   Traditional IRA

•   Roth IRA

•   SEP IRA (Simplified Employee Pension)

•   SIMPLE IRA

Box 7 of Form 5498 will identify the plan type that contributions are being reported for. You won’t see any contributions to other types of retirement plans, such as a 401(k) or 403(b), listed here.

Contributions to taxable accounts are not reported on Form 5498 either.

Conversions, Rollovers, and Recharacterizations

If you convert traditional IRA assets to a Roth account, roll over funds from one account to another, or recharacterize IRA contributions — which is the transfer of contributions plus any earnings from one IRA to another — you can expect to receive a Form 5498 reporting those transactions.

Here’s where those amounts will be listed on your form:

•   Box 2: Rollover contributions

•   Box 3: Roth IRA conversion amount

•   Box 4: Recharacterized contributions

You’ll also see information about the fair market value (FMV) of the account listed in Box 5. If applicable, Box 6 notes any life insurance cost included in Box 1.

In terms of the difference between a rollover IRA vs. traditional IRA, a rollover is simply the movement of money from one retirement account to another. For instance, you might roll money from a 401(k) into a traditional IRA if you change jobs. Or you could roll assets from one traditional IRA to another if you switch to a new IRA custodian.

Withdrawal/Distribution Info

Form 5498 is primarily used for reporting contributions to IRAs, but it is also used for listing RMDs. If you have a traditional IRA, you must begin taking RMDs at age 73 (assuming you turn 72 after December 31, 2022). The amount you’re required to withdraw is determined by your age, life expectancy, and account value.

RMD information is included on in these boxes on Form 5498:

•   Box 11: Only checked if an RMD is required

•   Box 12a: RMD date

•   Box 12b: RMD amount

Even if taking RMDs on an IRA is years away for you, it’s important to know what’s required. If you fail to take required minimum distributions on time each year, you may incur a tax penalty equivalent to 25% of the amount that you were supposed to withdraw. (The penalty might be reduced to 10% if you make a timely correction.)

Distributions from other types of retirement accounts such as pension plans are reported on Form 1099-R. Similar to the Form 5498, the IRS gets a copy so it’s important to make sure the withdrawals you’re reporting on your taxes match up.

Who Needs to File a 5498 Tax Form?

Your IRA custodian or trustee is required to submit a Form 5498 to the IRS on your behalf if you have a qualifying IRA transaction for the year. Again, that includes IRA contributions, IRA rollovers, recharacterizations, conversions, and required minimum distributions.

You don’t need to file this form with your tax return. However, you will need to report the appropriate information relating to IRA contributions you made, rollovers, RMDs, conversions, or recharacterizations on your tax return.

Different Kinds of 5498 Tax Forms

There’s more than one version of Form 5498 that you might receive, depending on what kind of accounts you’re funding during the year. In addition to the 5498 tax form for IRA contributions, you may also be issued either of the following:

•   Form 5498-ESA: This form is issued if you make contributions to a Coverdell Education Savings Account (ESA) on behalf of an eligible student. Distributions from a Coverdell ESA are reported on Form 1099-Q.

•   Form 5498-SA: This form 5498-SA is used to report contributions to Health Savings Accounts (HSAs), Archer Medical Savings Accounts (MSAs), and Medicare Advantage MSAs.

Form 5498 Due Date

The Form 5498 due date is generally May 31 of each year. So, for IRA contributions made in 2023, for instance, IRA trustees or custodians had until May 31, 2024 to send 5498 tax forms to the IRS.

You should also get a copy of the form, but if you don’t and you believe you should have, contact your IRA custodian or trustee to ask where it is. Remember, if you didn’t make any IRA contributions for the year or complete any other qualifying transactions, such as a recharacterization or rollover, you won’t get a Form 5498.

Entering a 5498 on a Tax Return

You don’t need to enter information from Form 5498 on your tax return. In fact, because of the timing when these forms are sent out, you should have already filed your return by the time you receive the 5498.

You will, however, need to enter your IRA contributions on your tax return. If you contributed to a traditional IRA, some or all of those contributions may be tax-deductible. Contributions to both traditional and Roth IRAs may qualify you for the Retirement Saver’s Credit, assuming that you’re within the accepted income threshold for your filing status.

You’ll also need to report contributions to SIMPLE IRAs and SEP IRAs on your tax return.

The Takeaway

Starting an IRA online can help you build wealth for retirement and potentially enjoy some tax breaks. A traditional IRA allows for tax-deductible contributions, while a Roth IRA allows you to take tax-free distributions in retirement. If you contribute to either type of IRA, or if you contribute to a SEP IRA or a SIMPLE IRA, you should get a Form 5498 each year. The form is informational only, and you are not required to file it with your taxes. Your IRA custodian will send a copy of the form to the IRS.

Prepare for your retirement with an individual retirement account (IRA). It’s easy to get started when you open a traditional or Roth IRA with SoFi. Whether you prefer a hands-on self-directed IRA through SoFi Securities or an automated robo IRA with SoFi Wealth, you can build a portfolio to help support your long-term goals while gaining access to tax-advantaged savings strategies.

FAQ

Do I have to report Form 5498 on my tax return?

No, you do not have to include or report Form 5498 on your tax return. The 5498 tax form you receive from your IRA trustee or custodian is informational only. The IRA custodian is required to send the form to the IRS.

What is the purpose of Form 5498?

Form 5498 is used to report IRA contributions to the IRS. IRA custodians are required to send this information to the IRS on behalf of each account owner who makes IRA contributions. The form is purely informational for taxpayers.

Who must file Form 5498?

IRA custodians, not individual taxpayers, are required to file a 5498 tax form with the IRS. If you get a Form 5498 in the mail, that means a copy of the form has also been sent to the IRS on your behalf.

About the author

Rebecca Lake

Rebecca Lake has been a finance writer for nearly a decade, specializing in personal finance, investing, and small business. She is a contributor at Forbes Advisor, SmartAsset, Investopedia, The Balance, MyBankTracker, MoneyRates and CreditCards.com. Read full bio.