Roth IRA documentation for withdrawals

[Beppington]

I opened my Roth IRA in '96 or '98 I think it was (documentation at home).

While I keep documentation for basically everything, most of my friends don't: Way down the road in say 30-35 years when they're ready to withdraw from their Roth, how will they know how much of what they're withdrawing is original contribution & how much is gain/ earnings, in order to pay taxes correctly?

[disneysteve]

If it is a Roth, it won't matter since there are no taxes on withdrawals.

[jIM_Ohio]

I opened my Roth IRA in '96 or '98 I think it was (documentation at home).

While I keep documentation for basically everything, most of my friends don't: Way down the road in say 30-35 years when they're ready to withdraw from their Roth, how will they know how much of what they're withdrawing is original contribution & how much is gain/ earnings, in order to pay taxes correctly?

Contributions in a Roth are always distributed first.

[Beppington]

If it is a Roth, it won't matter since there are no taxes on withdrawals.

Ah, yes. How about for someone who wants to withdraw principal or earnings early?

[Beppington]

And while I may not be finding the right scenario for my question: Is there a scenario where someone would need documentation/ statements/ forms from 30 years ago in order to determine the correct tax?

[disneysteve]

Ah, yes. How about for someone who wants to withdraw principal or earnings early?

And while I may not be finding the right scenario for my question: Is there a scenario where someone would need documentation/ statements/ forms from 30 years ago in order to determine the correct tax?

The investment firm should maintain that information. When I get my Roth statements, they state total amount of my contributions and current value of the account.

[MonkeyMama]

And while I may not be finding the right scenario for my question: Is there a scenario where someone would need documentation/ statements/ forms from 30 years ago in order to determine the correct tax?

Actually, this is an excellent question and valid concern.

Though it is generally only recommended to hold on to tax returns for 7 years or so, it is advisable to keep tax records for tax-deferred investments, FOREVER.

As far as relying on a broker? No thanks. I think they are getting a little better with the times, and technology (computer records). But I would recommend anyone keep meticulous records of any investments they make - ROTH, IRA, taxable, etc., etc.

I've prepared too many tax returns where no one knows what their basis is - in their retirement funds, or in their taxable accounts. Brokers are not always very helpful. They don't necessarily keep records forever, either. & with all these investment house mergers? Past data does not always carry over to the new firm.

Keeping records on ROTHs is debatable. But I would do it - tax laws change with the wind. & if nothing else - good to have proof that you made your ROTH contributions/conversions, and that they are not taxable. ROTH conversion tax forms are definitely advised to be kept forever.

[MonkeyMama]

I was going to amend to say "until death," but fact is, your heirs sometime need this info. Particularly with estate tax up in the air right now. Though "until death" will probably cover most of it.

[jIM_Ohio]

If you rollover a Roth or change custodians you will lose all cost basis information with broker. My rollover IRA has had 2 deposits, and I know some of the second deposit was earnings and some of it was contributions, T Rowe only shows it has a contribution.

To add what MM stated on inheritance taxes, I read about a situation where basis needed to be for 2 generations (grandfather passes property to his son, and that son has now passed and property went to grandson). Anyone have records for what the basis is? I didn't follow the rest of it (as inheritance taxes are a little beyond me right now), but I believe current tax law with repeal of certain inheritance taxes suggests you pay taxes on basis at a lower rate. But to find the basis on inherited property can be a challenge for some.

[Beppington]

Though it is generally only recommended to hold on to tax returns for 7 years or so, it is advisable to keep tax records for tax-deferred investments, FOREVER.

Too bad to have to do that, but that seems like the only way to be sure.

As far as relying on a broker? No thanks. I think they are getting a little better with the times, and technology (computer records). But I would recommend anyone keep meticulous records of any investments they make - ROTH, IRA, taxable, etc., etc.

I'll maintain my DIY ways with record keeping, too ... Think LEHMAN BROTHERS ... or better yet BERNIE MADOFF.

I've prepared too many tax returns where no one knows what their basis is - in their retirement funds, or in their taxable accounts. Brokers are not always very helpful. They don't necessarily keep records forever, either. & with all these investment house mergers? Past data does not always carry over to the new firm.

I had a somewhat complicated situation where a company in the mid 90's went bust, then got sued by a class action, which won, & because of that I received a check many years after having thought I'd closed out the entire transaction/ relationship with that company. I had to get Merrill Lynch to provide some old docs that I figured no chance would they still have. They did, WOW, & willingly provided me copies, which was nice. They could've either NOT had them, or wanted to charge me an arm & a leg for them (after all, where else was I gonna get them??)

Keeping records on ROTHs is debatable. But I would do it - tax laws change with the wind. & if nothing else - good to have proof that you made your ROTH contributions/conversions, and that they are not taxable. ROTH conversion tax forms are definitely advised to be kept forever.

Good to know, tks.

[MonkeyMama]

I just wanted to add that I totally understand that it may not be terribly practical to hang onto this stuff forever. Obviously, most people don't. But I see a lot of people get "double taxed" as a result. PArticularly when it comes to IRAs that have basis in them.

For another example, our state tax law has often differed from Federal law, so we keep basis schedules for decades for our clients. Obviously, joe blow average doesn't do this. But there were years where their IRAs were tax-deductible for Federal but not state. We are seeing this happen again, since the Fed/state laws don't agree, again. The people who don't keep these records are going to be taxed by the state a second time, when they take IRA distributions. This is just one example of many similar type situations.

[Beppington]

Wow if the idea of paying double taxes doesn't convince folks to keep their records, I dunno what will ...