Can a hay-bale of old IRA transaction records be thrown away? This is across decades including rule changes, transfers of custodians, rollover and sometimes Roth conversions. Could there ultimately be a dispute about which portion is taxable that might require old yellowing statements?
Traditional IRA - is the key issue what contributions were not tax deducted vs the rest (deducted contributions and gains, which are taxable)? Seems to me there was a major deductability change early on in 1986. Should you demand the breakdown from your current custodian of the underlying categories, so if it agrees you can throw away records?
Rollover IRA, Roth IRA - any different categories that impact later taxation of distributions? Can't even remember if the 401k source of rollover was originally deducted. thanks
There is very little value in keeping old IRA records, except the last form 8606 that you filed with your federal income tax return. Every year that you made a non-deductible traditional IRA contribution, you (should have) filed a form 8606, on which you added the non-deductible contribution to the total of your previous non-deductible contributions, giving an amount called the "basis" of your IRA. That basis is the only thing you need to know when you take distributions from your IRA, and you will file an 8606 each year that you take a distribution, on which you will calculate the amount of the distribution that is not taxable, as well as your new basis.
There may be some benefit in keeping records of your first Roth IRA contribution, since, if I recall correctly, distributions taken within five years of that origination date are not tax-free.
You can demand what you wish, but how would the custodian know what you did on your taxes? An IRA deposit made during the year may only be classified as deductible (for sure) at tax time, right? As Dave replied, you track this yourself via 8606.
Now, on the other hand, I am still getting legal notices of actions against companies for wrong doing back in the late 90's. Having those statements to provide proof of ownership was instrumental to recovery. If you have multiple accounts, I don't know how happy the broker will be to answer "so when did I buy and then sell XYZ corp back 10 years ago"?
Your IRA custodian (and therefore the transactions records generated by it) does not know what portion of your traditional IRA was deductible or not. You track and report that every year when you file your f8606 with your federal taxes.
What your IRA custodian does know, though, is exactly how much you contributed each year. And that gets reported back to you each year in a form 5498, which list all your annual contributions as well as what the portfolio's value was on Dec 31, which may be used for computing RMDs and such. That form is sent to both you and the IRS.
You custodian has no way of knowing what you deducted or didn't deduct on your taxes.
Same information is reported on that 5498 - Roth, SIMPLE and SEP IRA contributions are all listed. It also shows Roth conversions and recharacterizations.
Again, deductibility (and therefore basis) is not reported or tracked there. That's up to you and your 8606.
I'd keep the year-end summaries (most brokerages and custodians send one, in addition to monthly or quarterly statements), and of course the 8606s and 5498s. The year-end summaries should list all the individual transactions, so you won't need the individual transaction confirmations because they'd be redundant.
For saving long term records this may not be ideal, either. Both formats and media readers tend to disappear over time. I currently have a hard time reading my PC Write files on 5.25" floppies. You can just forget the files I have on cassette tape.
OK, that's a pretty elegant system which sounds easy on the accounting.
I gather a traditional IRA frozen in 1986 will have a basis of 0, regardless of transaction types (due to only deductable contribs allowed before 1987).
Same for a 401k rollover IRA; all distributions will be taxable since contributions weren't originally taxed.
A Roth conversion IRA will have a basis = it's value at time of conversion (the only transaction needing to be saved in all these).
If you never made non-deductible contributions, then you never filed an 8606, and your basis is, as you said, 0.
Yes.
You do want to track the conversion basis separately from the contribution basis in the Roth IRA because the IRS treats them differently with respect to when you can pull them out. Contributions may be taken out at any time and without penalty. Conversion amounts, when taken out, are actually treated differently, too. It can get a little messy, but there's actually an order that specifies which portion of your Roth IRA assets come out when you take a distribution. There are four "sources" of assets in the Roth IRA and distributions are considered to come from them in the following order: (a) regular contributions (b) taxable traditional IRA conversions (c) nontaxable traditional IRA conversions (this is the portion of your traditional IRA which was non-deductible in the first place) (d) earnings
If you take non-qualified distributions (ie. before you are 59.5, etc), the following applies to these:
(a) Distributions of regular constributions are always tax and penalty free.
(b) Distributions of taxable conversions are always tax-free (you paid taxes when you converted them), but they may be subject to a penalty if pull them out after less than 5 yrs.
(c) Distributions of nontaxable conversions are always tax and penalty free.
(d) Distributions of earnings are always tax-free, but penalties may apply.
So in order to distinguish between (b) and (c) - you will still need to know the basis numbers from your
I don't believe that's correct. I'm pretty sure a non-qualified distribution of earnings from a Roth IRA is subject to both income tax and the early withdrawal penalty tax.
Typically any bookkeeping errors are in favor of the IRS, because the presumption is you've never paid income taxes on the holdings of an IRA unless its a Roth. Thats why you need to keep the 8606 current.
Quite right. Non-qualified distributions of earnings may be taxed as ordinary income - and may be subject to the early withdrawal penalty. (p590 actually has an example where the beneficiaries pay income tax on the earnings but no early penalty applies).
IRS Publication 552 suggests keeping copies of all Forms 5498, 1099-R, and 8606 until all distributions are made from your IRA, and gives time periods for other records:
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A very obscure reason to keep IRA transaction records would be to contest a wash-sale allegation (stock sold in taxable account, loss claimed, but repurchased in IRA within the 30-day wash sale period). How that scenario would come up, I can't imagine, but it's possible. And that retention period could be "forever" if the loss you improperly claimed resulted in a 25% or greater understatement of your tax owed that year.
In this day and age, I believe it's not worth the time figuring out what to keep and how long. Keep it all, forever...scanned to a PDF or other standard format, and stored offsite using one of the many free or nearly free secure online-backup services. No concerns over PC changes, cracked CDs, or a flood in the house. And if storage is free...it's not even worth your time to delete the stuff you probably won't need.
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