determining roth contributions vs earnings in FI

[privatefarmer]

Hello all - if someone reaches financial independence before age 59 1/2 and they want to start taking withdrawals from their portfolio, and want to start w/ the roth contributions, who exactly is responsible for providing the documentation regarding how much contributions one has made over the course of his/her lifetime? I could only imagine if one had say 25 years of roth IRA and roth 401k contributions, and if one had moved the money around several times between brokerages, that it would be a huge headache to try and determine how much of the total roth amount is contributions vs earnings. From what I can tell, the discount brokerages don't have records of this if the contributions were made years ago at a different brokerage firm. If one moves their IRA between brokerages or rolls their roth 401k over to a roth IRA, it could get real messy in a hurry.

Does the IRS have records of all the contributions to both roth IRAs and roth 401ks that we have made? Or would we have to provide proof of contributions through old statements from the brokerages/401k provider? Thanks!!

[Cromacster]

You file it on your taxes every year, so there is that record.  I also keep track myself in a spreadsheet detailing my Roth and Trad. IRA contributions every year.

[seattlecyclone]

Actually, you don't report Roth contributions on your taxes each year. Conversions yes, contributions no. For Roth IRA contributions your brokerage will send you and the IRS a form 5498 after the tax deadline reporting this information. Hold on to it! For workplace Roth contributions, the amount will show up on Box 12 of your W-2 with code AA (for a 401(k)), BB (for a 403(b)), or EE (for a 457). Save those too. In neither case do you have to report these on your tax return in the year of contribution.

When you take your first early distribution you'll need to report your total basis on Form 8606. Remember this has already been reported to the IRS each year, so don't report too much.

[Cromacster]

Actually, you don't report Roth contributions on your taxes each year. Conversions yes, contributions no. For Roth IRA contributions your brokerage will send you and the IRS a form 5498 after the tax deadline reporting this information. Hold on to it! For workplace Roth contributions, the amount will show up on Box 12 of your W-2 with code AA (for a 401(k)), BB (for a 403(b)), or EE (for a 457). Save those too. In neither case do you have to report these on your tax return in the year of contribution.

When you take your first early distribution you'll need to report your total basis on Form 8606. Remember this has already been reported to the IRS each year, so don't report too much.

Ah, maybe I am just confusing what turbo tax is asking me vs. what is actually reported on my taxes.

[Rubic]

Actually, you don't report Roth contributions on your taxes each year. Conversions yes, contributions no.

TIL: I've always filled out my Roth contribution amount in a form sent to my
accountant and assumed it was being reported to the IRS.  I'm guessing since
your financial firm is sending a Form 5498 to the IRS, it would be redundant
(and unconfirmable) for the taxpayer to report their Roth contribution.

[seattlecyclone]

More to the point, most people's Roth contributions have no effect on their tax bill, so there's no reason to ask the taxpayer to report them unless they need to for the saver's credit or something.

[Rubic]

More to the point, most people's Roth contributions have no effect on their tax bill, so there's no reason to ask the taxpayer to report them unless they need to for the saver's credit or something.

Yes, but for example: I could fund some relatives' Roth accounts when they weren't
earning income (e.g. when they're young children) so I'd imagine the IRS would want
some form of reporting.  Likewise, when I FIRE, I can't simply move some excess
cash to a Roth when I'm not earning income, else I could shelter the gains illicitly.

[seattlecyclone]

Yes, the IRA custodian has to report the contributions to the IRS on Form 5498. I'm sure the IRS has some software that checks these numbers against your reported earnings to make sure you're really allowed to contribute that much. But the contributions don't affect your tax bill when you make them, so there doesn't need to be a spot for it on your 1040.

[teen persuasion]

More to the point, most people's Roth contributions have no effect on their tax bill, so there's no reason to ask the taxpayer to report them unless they need to for the saver's credit or something.

Yes, but for example: I could fund some relatives' Roth accounts when they weren't
earning income (e.g. when they're young children) so I'd imagine the IRS would want
some form of reporting.  Likewise, when I FIRE, I can't simply move some excess
cash to a Roth when I'm not earning income, else I could shelter the gains illicitly.

If they don't have earned income, they aren't eligible to fund an IRA, Roth or traditional, even with gifted funds.  I've heard of parents funding children's Roth IRAs WHEN the child has earnings, but not w/o earnings.

Am I misunderstanding something here?

[Rubic]

More to the point, most people's Roth contributions have no effect on their tax bill, so there's no reason to ask the taxpayer to report them unless they need to for the saver's credit or something.

Yes, but for example: I could fund some relatives' Roth accounts when they weren't
earning income (e.g. when they're young children) so I'd imagine the IRS would want
some form of reporting.  Likewise, when I FIRE, I can't simply move some excess
cash to a Roth when I'm not earning income, else I could shelter the gains illicitly.

If they don't have earned income, they aren't eligible to fund an IRA, Roth or traditional, even with gifted funds.  I've heard of parents funding children's Roth IRAs WHEN the child has earnings, but not w/o earnings.

Am I misunderstanding something here?

No, you're not misunderstanding Roth contributions, but you may have
skipped over some of the context in this thread.

I was unaware that Roth contributions by the taxpayer were not reported
to the IRS and learned something new, thanks to @seattlecyclone.

The discussion then drifted to how the IRS would track illegitimate
contributions to a Roth account, which they presumably do by
comparing the IRA custodian's Form 549 against the taxpayer's
reported 1040 earnings.  Hence my comment about "else I could
shelter the gains illicitly".

[teen persuasion]

More to the point, most people's Roth contributions have no effect on their tax bill, so there's no reason to ask the taxpayer to report them unless they need to for the saver's credit or something.

Yes, but for example: I could fund some relatives' Roth accounts when they weren't
earning income (e.g. when they're young children) so I'd imagine the IRS would want
some form of reporting.  Likewise, when I FIRE, I can't simply move some excess
cash to a Roth when I'm not earning income, else I could shelter the gains illicitly.

If they don't have earned income, they aren't eligible to fund an IRA, Roth or traditional, even with gifted funds.  I've heard of parents funding children's Roth IRAs WHEN the child has earnings, but not w/o earnings.

Am I misunderstanding something here?

No, you're not misunderstanding Roth contributions, but you may have
skipped over some of the context in this thread.

I was unaware that Roth contributions by the taxpayer were not reported
to the IRS and learned something new, thanks to @seattlecyclone.

The discussion then drifted to how the IRS would track illegitimate
contributions to a Roth account, which they presumably do by
comparing the IRA custodian's Form 549 against the taxpayer's
reported 1040 earnings.  Hence my comment about "else I could
shelter the gains illicitly".

Ah, got it.  I interpreted "could" as "allowed", not "might try it".