Author Topic: Roth IRA's.. KEEP YOUR 5498's!!!  (Read 4570 times)

Exflyboy

  • Walrus Stache
  • *******
  • Posts: 5641
  • Age: 57
  • Location: Corvallis, Oregon
  • Expat Brit living in the New World..:)
Roth IRA's.. KEEP YOUR 5498's!!!
« on: March 29, 2018, 07:08:45 PM »
Hi all,

We know one of the major advantages of the Roth IRA is that the contributions can be withdrawn at any time tax free. The problem is keeping track of what is a contribution and what is investment gain is.

This is NOT automatic. I have had three Roth providers in the past 20 years and now when I went to go add up everything that is a contribution.. Well its not easy, mainly because most of the providers only provide tax info that goes back to 2013.

The providers are required to send you (and the IRS) a form 5498 that details your IRA contributions. The problem is beyond about 5 years those forms will be lost.. But you can bet the IRS has a complete set!

From the reading I have done it is not absolutely necessary to have the actual 5498 as long as you can track the actual contributions. I found that the providers I currently have, one allows you to go back to 2005 and my Vanguard goes back to 2011. But compiling the data is not exactly straightforward.

I currently can prove about 60% of what I believe our total contributions were. The data between 2006 and 2010 was with a third provider but I have since closed these accounts and transferred the money to Vanguard.. Sadly the contribution data does not transfer with the money.

I also found out the IRS can provide you with back copies of your 5498's going back 10 years for free. You have to fill out and submit form 4506-T to get them.

While 10 years of 5498's will get me closer its still not a complete set.

The moral of the story is.. print off and keep your 5498 because it could save you a huge headache many years down the road when looking for your tax free funds.

Gone Fishing

  • Magnum Stache
  • ******
  • Posts: 2722
  • So Close went fishing on April 1, 2016
    • Journal
Re: Roth IRA's.. KEEP YOUR 5498's!!!
« Reply #1 on: March 29, 2018, 07:13:45 PM »
I have those in the "Keep Forever!" file. 

SwitchActiveDWG

  • Stubble
  • **
  • Posts: 117
Re: Roth IRA's.. KEEP YOUR 5498's!!!
« Reply #2 on: March 30, 2018, 11:07:17 AM »
I have all contributions tracked in spreadsheets... but maybe I should be keeping these forms just in case.

Exflyboy

  • Walrus Stache
  • *******
  • Posts: 5641
  • Age: 57
  • Location: Corvallis, Oregon
  • Expat Brit living in the New World..:)
Re: Roth IRA's.. KEEP YOUR 5498's!!!
« Reply #3 on: March 30, 2018, 12:16:31 PM »
I would.. If the IRS loses their copies of your 5498's then the burden of proof might be on you (most likely.. Guilty until proven innocent and all that).

If you have the official tax forms then they can't argue against you.

BlueHouse

  • Magnum Stache
  • ******
  • Posts: 2801
  • Location: WDC
Re: Roth IRA's.. KEEP YOUR 5498's!!!
« Reply #4 on: March 30, 2018, 12:57:13 PM »
My accountant told me I didn't need to keep any documentation once I did the taxes for them, but maybe he meant to keep the forms (because I'll be keeping my tax filings). 

Isn't the growth on Roth tax-free? 

terran

  • Handlebar Stache
  • *****
  • Posts: 1663
Re: Roth IRA's.. KEEP YOUR 5498's!!!
« Reply #5 on: March 30, 2018, 01:03:02 PM »
Isn't the growth on Roth tax-free?

Yes, but you still pay a 10% penalty on it if you withdraw before 59 1/2. That's why it's important to know the basis as that can be withdrawn at any time both tax and penalty free.

Exflyboy

  • Walrus Stache
  • *******
  • Posts: 5641
  • Age: 57
  • Location: Corvallis, Oregon
  • Expat Brit living in the New World..:)
Re: Roth IRA's.. KEEP YOUR 5498's!!!
« Reply #6 on: March 30, 2018, 01:23:48 PM »
I believe you pay both taxes AND the 10% penalty if you withdraw earnings before 59 1/2.

Only contributions can be withdrawn (tax+penalty free) before 59 1/2

Hence why it is so important to an early retiree to keep careful track of contributions.

Exflyboy

  • Walrus Stache
  • *******
  • Posts: 5641
  • Age: 57
  • Location: Corvallis, Oregon
  • Expat Brit living in the New World..:)
Re: Roth IRA's.. KEEP YOUR 5498's!!!
« Reply #7 on: March 30, 2018, 01:28:11 PM »
My accountant told me I didn't need to keep any documentation once I did the taxes for them, but maybe he meant to keep the forms (because I'll be keeping my tax filings). 



You absolutely need to keep ALL tax documentation for a minimum of 3 years, realistically 6 years because if the the IRS suspects fraud they can go back 6 years.

The other problem is the 5498 is not part of your tax return.. This is partly why they are so easy to lose track of.

If you change Roth providers over a thirty year period then good luck trying to piece it all back together.


braje

  • 5 O'Clock Shadow
  • *
  • Posts: 64
Re: Roth IRA's.. KEEP YOUR 5498's!!!
« Reply #8 on: March 30, 2018, 02:46:48 PM »
I believe you pay both taxes AND the 10% penalty if you withdraw earnings before 59 1/2.

Only contributions can be withdrawn (tax+penalty free) before 59 1/2

Hence why it is so important to an early retiree to keep careful track of contributions.
  What is the 5 year rule then? I thought once you held for 5 or more years you could take distributions penalty free.

terran

  • Handlebar Stache
  • *****
  • Posts: 1663
Re: Roth IRA's.. KEEP YOUR 5498's!!!
« Reply #9 on: March 30, 2018, 02:48:31 PM »
I believe you pay both taxes AND the 10% penalty if you withdraw earnings before 59 1/2.

I think you're right.

robartsd

  • Handlebar Stache
  • *****
  • Posts: 1874
  • Location: Northern California
Re: Roth IRA's.. KEEP YOUR 5498's!!!
« Reply #10 on: March 30, 2018, 03:00:35 PM »
What is the 5 year rule then? I thought once you held for 5 or more years you could take distributions penalty free.
The 5 year rule applies to Roth conversions. 5 years after a Roth conversion you can take out the converted amount tax free (just like direct Roth contributions). Earning on the conversion are treated just like earnings on any other contribution.

I don't anticipate every having a Roth IRA outside of the ones we currently have at Vanguard. As all deposits are Roth contributions in it currently it is really easy to see what is a contribution and what is growth when looking at the personal performance screens. There may come a time when I want to do Roth conversions, so more tracking would be needed then.

terran

  • Handlebar Stache
  • *****
  • Posts: 1663
Re: Roth IRA's.. KEEP YOUR 5498's!!!
« Reply #11 on: March 30, 2018, 03:18:50 PM »
What is the 5 year rule then? I thought once you held for 5 or more years you could take distributions penalty free.
The 5 year rule applies to Roth conversions. 5 years after a Roth conversion you can take out the converted amount tax free (just like direct Roth contributions). Earning on the conversion are treated just like earnings on any other contribution.

There are actually two 5 year rules: https://www.kitces.com/blog/understanding-the-two-5-year-rules-for-roth-ira-contributions-and-conversions/

CoffeeAndDonuts

  • 5 O'Clock Shadow
  • *
  • Posts: 73
  • Location: Minnesota
Re: Roth IRA's.. KEEP YOUR 5498's!!!
« Reply #12 on: March 31, 2018, 01:42:00 AM »
Good reminder! About two years ago, I realized the importance of this as we're likely to access the funds before 59.5. I made a big project of organizing my documentation. Amazingly, I'd kept a bunch of paper (but not all) dating to 1996 including a Roth conversion done in 1998 or 99. Stray bits of paper substantiated nearly every contribution.

Honestly, I recall being confused what the 5498's were for because my returns never needed the data. And I did lose a few but I kept enough to put it all together.

Now, of course, it's all digital (and backed up and encrypted) consisting of a spreadsheet with a sheet for each account (they've moved and converted many times) that tracks each deposit, opening, closing, transfer, etc with each element referencing a supporting document.

21 years, probably 15 IRA accounts of all sorts fully documented.

Only bummer in the effort was rvisiting what a dufus I was with investing choices up to maybe 2004.

Relatedly, I did similar documentation of our HSA which is invested and which we're deferring withdrawals of qualified expenses. That documentation is far more voluminous and painful to maintain!

bacchi

  • Magnum Stache
  • ******
  • Posts: 3192
Re: Roth IRA's.. KEEP YOUR 5498's!!!
« Reply #13 on: March 31, 2018, 05:58:12 PM »
Thanks, Exflyboy. I found/downloaded old ones to 2006; I can reconstruct the few remaining years through my budget spreadsheets. If the IRS complains about the lack of evidence, I can walk it back. It doesn't total too much in the early years.

BlueHouse

  • Magnum Stache
  • ******
  • Posts: 2801
  • Location: WDC
Re: Roth IRA's.. KEEP YOUR 5498's!!!
« Reply #14 on: March 31, 2018, 07:51:46 PM »
Isn't the growth on Roth tax-free?

Yes, but you still pay a 10% penalty on it if you withdraw before 59 1/2. That's why it's important to know the basis as that can be withdrawn at any time both tax and penalty free.

Oh, this doesn't apply to me then.  I'm already old. 

Exflyboy

  • Walrus Stache
  • *******
  • Posts: 5641
  • Age: 57
  • Location: Corvallis, Oregon
  • Expat Brit living in the New World..:)
Re: Roth IRA's.. KEEP YOUR 5498's!!!
« Reply #15 on: March 31, 2018, 11:02:15 PM »
To be honest it "probably" doesn't apply to me either. I have 3 years till I hit 59.5 but heck, a completely tax free source of say $100k to buy something outrageous that I don't need, rather than wait 3 years?

Yeah I'll take it.

Of course its not tax "free" money.. Its money I have already paid taxes on and Oregon's state income tax ain't cheap either! So having to wait 3 years so I can collect MY money cus I didn't keep the bloody 5498's kinda pisses me off!

TomTX

  • Magnum Stache
  • ******
  • Posts: 3116
  • Location: Texas
Re: Roth IRA's.. KEEP YOUR 5498's!!!
« Reply #16 on: April 01, 2018, 09:11:32 AM »
I actually have a bunch of cancelled cheques for the early Roth contributions. Back when banks returned your cheques.

Somewhat more recently, I have a bunch of check images sent with a paper statement. Back when banks send images of the cheques in your statement.

These are all dumped in a generic "tax" file folder rather than the individual filing year file.

Clean Shaven

  • Pencil Stache
  • ****
  • Posts: 800
  • Location: Wild Wild West
Re: Roth IRA's.. KEEP YOUR 5498's!!!
« Reply #17 on: April 01, 2018, 09:23:54 AM »
This is a good tip. I'll have to go back through old tax records and see if I have all mine.

I know that the only Roth I ever had was at Vanguard, started somewhere around 2000. Anyone know offhand if Vanguard can supply old Roth contribution info dating back that far?

DreamFIRE

  • Handlebar Stache
  • *****
  • Posts: 1380
Re: Roth IRA's.. KEEP YOUR 5498's!!!
« Reply #18 on: April 05, 2018, 11:01:36 PM »

I wasn't sure if I had all my 5498's going back to 2008, but I did some digging, and it looks like I have all of them, some paper, with electronic copies going back the last several years.

fuzzy math

  • Pencil Stache
  • ****
  • Posts: 638
  • Location: PNW ---> Midwest (for now)
Re: Roth IRA's.. KEEP YOUR 5498's!!!
« Reply #19 on: April 08, 2018, 02:06:24 PM »
Thank you!!! Went to look and only $2400 is old enough (and of that probably only $1200 was a contribution) to be unaccounted for. I can live with that. I'm going to have to look through vanguard to see if they've sent me the forms. Edit: got them!
« Last Edit: April 08, 2018, 02:14:34 PM by fuzzy math »

Exflyboy

  • Walrus Stache
  • *******
  • Posts: 5641
  • Age: 57
  • Location: Corvallis, Oregon
  • Expat Brit living in the New World..:)
Re: Roth IRA's.. KEEP YOUR 5498's!!!
« Reply #20 on: April 08, 2018, 03:07:03 PM »
Good for you.. I am hoping to hear back from the IRS by the end of next week.. fingers crossed.

ScreamingHeadGuy

  • 5 O'Clock Shadow
  • *
  • Posts: 71
  • Age: 39
  • Location: Down the street from the Frozen Tundra
Re: Roth IRA's.. KEEP YOUR 5498's!!!
« Reply #21 on: April 30, 2018, 12:46:10 PM »
Thank you for the reminder /notice. 

I was able to recover documentation for all but two years' worth of Roth contributions (but those would have been early 2000s and only amounted to $4000). 

Now to take care of my wife's records.

Spitfire

  • Stubble
  • **
  • Posts: 232
  • Location: Weston, FL
Re: Roth IRA's.. KEEP YOUR 5498's!!!
« Reply #22 on: May 02, 2018, 03:20:43 PM »
Thanks for the heads up, just went into vanguard and downloaded my past forms. I had them with my tax papers for each year but I put them all in one place now. 

kenmoremmm

  • Stubble
  • **
  • Posts: 138
Re: Roth IRA's.. KEEP YOUR 5498's!!!
« Reply #23 on: May 11, 2018, 10:17:34 PM »
i created my IRS account and downloaded all the transcripts available, but did not specifically see 5498 forms. did i miss something? i see there are various entries within the transcripts i downloaded that highlight roth contributions; just not sure if this is the correct missing info.

ScreamingHeadGuy

  • 5 O'Clock Shadow
  • *
  • Posts: 71
  • Age: 39
  • Location: Down the street from the Frozen Tundra
Re: Roth IRA's.. KEEP YOUR 5498's!!!
« Reply #24 on: May 13, 2018, 11:22:02 AM »
There is no option for Form 4598 specifically.  But, like you said, the data is on the yearly transcript.  If push came to shove, I think the IRS would accept documentation of the Roth contribution on its yearly transcript. 

secondcor521

  • Handlebar Stache
  • *****
  • Posts: 1759
  • Age: 49
  • Location: Boise, Idaho
  • Big cattle, no hat.
    • Age of Eon - Overwatch player videos
Re: Roth IRA's.. KEEP YOUR 5498's!!!
« Reply #25 on: May 13, 2018, 06:43:13 PM »
This is a good tip. I'll have to go back through old tax records and see if I have all mine.

I know that the only Roth I ever had was at Vanguard, started somewhere around 2000. Anyone know offhand if Vanguard can supply old Roth contribution info dating back that far?

Vanguard supplied me with information back to 2001 when I asked them for it in about 2014.

Arbitrage

  • Stubble
  • **
  • Posts: 246
Re: Roth IRA's.. KEEP YOUR 5498's!!!
« Reply #26 on: May 25, 2018, 10:45:08 AM »
Yep...I went through this exercise last weekend.  I remember being baffled by the purpose of keeping this documentation years ago "It's Roth, it doesn't affect my tax return, what gives?", but fortunately I didn't throw most of them away.  I do need to call Vanguard to get one missing year (not available online), but the rest I tracked down.



Mr. Green

  • Handlebar Stache
  • *****
  • Posts: 1766
  • Age: 35
  • Location: Wilmington, NC
Re: Roth IRA's.. KEEP YOUR 5498's!!!
« Reply #27 on: June 02, 2018, 06:22:37 AM »
One of the routines I've grown into is digitizing all tax documentation necessary for each tax year and keeping it in Google Drive in a folder. It keeps me from hanging on to mountains of paperwork and ensures I can look back at previous years if I encounter special tax circumstances I've dealt with in the past. I include all 1099s and 5498s in the folder so this will serve us well in the future when we reach the withdrawal stage of the Roth IRA conversion process.
« Last Edit: June 02, 2018, 07:51:52 AM by Mr. Green »

Indexer

  • Handlebar Stache
  • *****
  • Posts: 1217
Re: Roth IRA's.. KEEP YOUR 5498's!!!
« Reply #28 on: June 03, 2018, 06:43:16 AM »
Thank you!

I just downloaded all of my 5498's from Vanguard.

I've been keeping track of Roth contributions in a spreadsheet, but these will come in handy if I ever used it and if the IRS ever asked.

NaturallyHappier

  • Stubble
  • **
  • Posts: 129
  • Age: 52
  • Location: Near Philadelphia, PA
  • FIRED 3/10/2017
Re: Roth IRA's.. KEEP YOUR 5498's!!!
« Reply #29 on: June 03, 2018, 07:28:44 AM »
I'm planning on starting to convert some of my IRA to roth this year.  I have a Roth IRA that I started some years back.  I have always wondered how conversions are tracked for the 5 year rule.  Is this how it is done?  You just have to manually track how much of your roth is contributions and on what date you made them, or does Vanguard (where I have my investments) also show you some how what amount is eligible for withdrawal tax free at any point in time?

secondcor521

  • Handlebar Stache
  • *****
  • Posts: 1759
  • Age: 49
  • Location: Boise, Idaho
  • Big cattle, no hat.
    • Age of Eon - Overwatch player videos
Re: Roth IRA's.. KEEP YOUR 5498's!!!
« Reply #30 on: June 03, 2018, 10:39:02 AM »
I'm planning on starting to convert some of my IRA to roth this year.  I have a Roth IRA that I started some years back.  I have always wondered how conversions are tracked for the 5 year rule.  Is this how it is done?  You just have to manually track how much of your roth is contributions and on what date you made them, or does Vanguard (where I have my investments) also show you some how what amount is eligible for withdrawal tax free at any point in time?

You have to manually keep track of contributions and conversions - both amounts and dates.  Form 5498's that you receive from your custodian annually should help with the former, and Form 8606's that you file with your tax returns should help with the latter.

Zoot Allures

  • Stubble
  • **
  • Posts: 191
  • Age: 48
  • Location: Pacific Northwest
Re: Roth IRA's.. KEEP YOUR 5498's!!!
« Reply #31 on: June 15, 2018, 11:25:42 AM »
Glad I found this informative and reassuring thread. It was rather unnerving to get a letter from the IRS the other day claiming I owed an additional $11k on my 2016 return. It took me a minute to figure out the problem was my withdrawal of $25k from my Roth IRA that year. I just spoke with a super helpful rep at Vanguard who's going to send me all of my past 5498s. Interesting to see how punitive this withdrawal would have been if I actually owed taxes (plus penalty and interest) on it.

Exflyboy

  • Walrus Stache
  • *******
  • Posts: 5641
  • Age: 57
  • Location: Corvallis, Oregon
  • Expat Brit living in the New World..:)
Re: Roth IRA's.. KEEP YOUR 5498's!!!
« Reply #32 on: June 15, 2018, 11:42:13 AM »
Glad I found this informative and reassuring thread. It was rather unnerving to get a letter from the IRS the other day claiming I owed an additional $11k on my 2016 return. It took me a minute to figure out the problem was my withdrawal of $25k from my Roth IRA that year. I just spoke with a super helpful rep at Vanguard who's going to send me all of my past 5498s. Interesting to see how punitive this withdrawal would have been if I actually owed taxes (plus penalty and interest) on it.

Well and the joke of it is the IRS already HAS this information. They know full well you don't owe a dime but they are trying to pull a fast one hoping that YOU can't prove it.

As they say "I'm the Government and I'm here to help you"

MoneyTree

  • 5 O'Clock Shadow
  • *
  • Posts: 7
Re: Roth IRA's.. KEEP YOUR 5498's!!!
« Reply #33 on: July 19, 2018, 06:54:40 PM »
What would happen if I mis-state my Roth Basis? I have a pretty good idea with my own record keeping, but don't have the entire 5498 history from former Roth custodians before I transferred everything to Vanguard.

If I am off, would the IRS just send me a bill for the difference? Or will I only be able to withdraw what I can actually prove?

secondcor521

  • Handlebar Stache
  • *****
  • Posts: 1759
  • Age: 49
  • Location: Boise, Idaho
  • Big cattle, no hat.
    • Age of Eon - Overwatch player videos
Re: Roth IRA's.. KEEP YOUR 5498's!!!
« Reply #34 on: July 19, 2018, 07:48:18 PM »
What would happen if I mis-state my Roth Basis? I have a pretty good idea with my own record keeping, but don't have the entire 5498 history from former Roth custodians before I transferred everything to Vanguard.

If I am off, would the IRS just send me a bill for the difference? Or will I only be able to withdraw what I can actually prove?

You withdraw whatever you decide to.  You report whatever you think is right on your 1040 / 8606.  I don't know if the IRS would be able to identify a discrepancy in basis, but if they did, yes, they would likely send you a notice of some kind.  They might also audit your return for other errors.

Exflyboy

  • Walrus Stache
  • *******
  • Posts: 5641
  • Age: 57
  • Location: Corvallis, Oregon
  • Expat Brit living in the New World..:)
Re: Roth IRA's.. KEEP YOUR 5498's!!!
« Reply #35 on: July 20, 2018, 10:30:35 AM »
What would happen if I mis-state my Roth Basis? I have a pretty good idea with my own record keeping, but don't have the entire 5498 history from former Roth custodians before I transferred everything to Vanguard.

If I am off, would the IRS just send me a bill for the difference? Or will I only be able to withdraw what I can actually prove?

You withdraw whatever you decide to.  You report whatever you think is right on your 1040 / 8606.  I don't know if the IRS would be able to identify a discrepancy in basis, but if they did, yes, they would likely send you a notice of some kind.  They might also audit your return for other errors.

The IRS has all your 5498's on file. (They will actually send you 10 years worth if you ask them). Now I got mine and I am not at all convinced the data on my 5498's is even correct. They seem to be saying I didn't make ANY ROTH contributions..

The problem is as far as the IRS is concerned their data is GOSPEL. If your withdrawals exceed what they think is the sum of your contributions they will send you a bill pure and simple.

The onus will then be on you to prove that you don't owe any money.

So yes they will send you a bill.

Exflyboy

  • Walrus Stache
  • *******
  • Posts: 5641
  • Age: 57
  • Location: Corvallis, Oregon
  • Expat Brit living in the New World..:)
Re: Roth IRA's.. KEEP YOUR 5498's!!!
« Reply #36 on: July 20, 2018, 05:59:17 PM »
Well I have now deciphered all of the data that the IRS provided to me as a result of submitting the 4506-T form.

I found most of the 5498 data which fairly closely agrees with what I have on file but not quite.

I essentially am missing one year of data from 2007 plus maybe a few thousand from really early years prior to 2003.

I need to get the IRS to send me the most recent data (years 2013 thru 2016) that I made Roth contributions in case of minor discrepencies with what I got from Vanguard.

Looks like I'll be able to prove total contributions of around $80k which should be more than adequate for any needs we might have in the next 2.5 years or so, when I will be 59.5 for me and 6 years for DW..

This was quite a bit of work to compile all of this, so keeping the 5498's would have been much easier.
« Last Edit: July 20, 2018, 06:01:11 PM by Exflyboy »

Exflyboy

  • Walrus Stache
  • *******
  • Posts: 5641
  • Age: 57
  • Location: Corvallis, Oregon
  • Expat Brit living in the New World..:)
Re: Roth IRA's.. KEEP YOUR 5498's!!!
« Reply #37 on: July 20, 2018, 06:09:51 PM »
There is no option for Form 4598 specifically.  But, like you said, the data is on the yearly transcript.  If push came to shove, I think the IRS would accept documentation of the Roth contribution on its yearly transcript.

I would hope they would as its THEIR documentation. The transcript data clearly shows for each year "Roth IRA contribution".. with a $$ figure.

I think it would be impossible for them to argue otherwise?