Author Topic: Roth IRA's.. KEEP YOUR 5498's!!!  (Read 3213 times)

Exflyboy

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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We know one of the major advantages of the Roth IRA is that the contributions can be withdrawn at any time tax free.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.

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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

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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

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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

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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? 
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terran

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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

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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

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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

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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

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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.

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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

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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

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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

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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

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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. 
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Exflyboy

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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

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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.
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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?

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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.

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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 »
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Exflyboy

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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.

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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.
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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. 

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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.

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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. 
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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.
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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.



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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 »
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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.

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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?

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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.
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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

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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"