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Explorer ○

Roth records.

I have been doing Roth Conversions for a number of years. While it is unlikely that I will ever tap into them I do have questions about the paper trail.

What paper is generated by the financial firm holding the Roth if I take a distribution? Do I get a form come tax time?

When and how does one prove the Roth is past the 5 year holding period?

8 Replies
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Follower ○○

Re: Roth records.

Financial institutions issue Form 1099-R (Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs,
Insurance Contracts, etc.) after the year-end. This form should include any distributions taken from Roth as well.  Below find the instructions as issued by IRS...

https://www.irs.gov/pub/irs-pdf/i1099r.pdf

The amounts will need to be at least reported on your individual Form 1040 (tax-ability depends upon qualified vs non-qualified distributions). 

In terms of paper-trail, if IRS wanted to tally/cross-check, they can look at previously filed Form 5498s, Form 1099-Rs and Form 8606s (which is /should be part of your 1040 -- from previous years/when Roth conversions were done). 

Hope it helps. 

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Explorer ○○

Re: Roth records.

The financial institution making the distribution will report to you and the IRS on the form 1099-R, Box 7. Code Q is for a qualified distribution, not taxable. See also Box 7 Codes J and T.

You should maintain the records for the first contribution to a Roth IRA. The time starts with the first contribution. You should maintain records of any contribution including recharacterization and conversions. If you have multiple Roth IRA accounts, the first contribution to the first account starts the 5 year period. Transfers or rollovers of Roth IRA funds will generate a 1099-R, which is not a taxable event. You should preserve all records concerning IRAs and other salary reduction accounts such as 401k, 403b, TSP etc.  and ignore all recommendations to destroy after 7 years. 

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Frequent Contributor

Re: Roth records.

One obscure point about tax free distributions of Roth’s is that the 5 year rule for tax free withdrawals of investment income is applied differently for Roth conversions than contributions. For Roth contributions the 5 year period for all distributions of income being tax free begins with the year the first contribution is made to the Roth IRA.

for conversations there is a separate 5 year look back for the investment income on each years conversion.to be non taxable. For example in 2017 all investment income earned prior to 2013 could be withdrawn tax free if the owner was 59 1/2.

This information is important for tax reporting because no form 8606 is filed if the only funds withdrawn for a Roth conversion were contributed more than 5 tax years previously.

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Explorer ○

Re: Roth records.

Thanks to all for the information.

It is not clear to me at this time that the CU I am dealing with has the historical data at their finger tips to determine if the 5 year holding period has been met.

They went thru a major software change last year and I am still trying to get corrections made. I recently discovered, on my monthly statement, they have mislabeled a Roth CD as simple an IRA CD. I am glad to have my paper records stored as BlueBike88 suggested.

Last week, while doing a Roth Conversion, they took the funds out of an existing Roth IRA, one that was mislabeled, than the Traditional IRA I had requested.

I am tired of trying to get this stuff done over the phone so tomorrow it is another trip to the big city.

Moose

 

 

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Participant ○○○

Re: Roth records.

Moose,

Which begs the question ... what financial group are you dealing with ?

ctyankee

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Highlighted
Explorer ○

Re: Roth records.

It is a major CU in a large city in the SW. I prefer not to say more at this time to give them time to get it right.

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Highlighted
Explorer ○○

Re: Roth records.

I would also review the IRS form 5498 IRA Contributions, which will list contributions, distributions, holdings and RMDs. There should be separate 5498 forms for each account, traditional IRA and Roth IRA accounts. The 5498 should be issued to you and the IRS by the financial institution holding the IRA accounts.  If CU issued incorrect 5498 forms or neglected to issue the forms, I would demand CU to issue revised or late forms. See “Why IRA Holders Need to Scrutinize IRS Form 5498” at  https://www.morningstar.com/articles/839625/why-ira-holders-need-to-scrutinize-irs-form-5498

This article by a Natalie Choate, a tax attorney, recommends retention of all 5498 forms and requiring financial institutions to correct and report any errors to the IRS.

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Highlighted
Frequent Contributor

Re: Roth records.


@BlueBike88 wrote:

I would also review the IRS form 5498 IRA Contributions, which will list contributions, distributions, holdings and RMDs. There should be separate 5498 forms for each account, traditional IRA and Roth IRA accounts. The 5498 should be issued to you and the IRS by the financial institution holding the IRA accounts.  If CU issued incorrect 5498 forms or neglected to issue the forms, I would demand CU to issue revised or late forms. See “Why IRA Holders Need to Scrutinize IRS Form 5498” at  https://www.morningstar.com/articles/839625/why-ira-holders-need-to-scrutinize-irs-form-5498

This article by a Natalie Choate, a tax attorney, recommends retention of all 5498 forms and requiring financial institutions to correct and report any errors to the IRS.


I would not worry about 5498 forms where the IRA assets are publicly traded because custodians take fmv from year end stock exchange listing. There will be issues on valuing non publicly traded assets such as RE, promissory notes, business interests and annuity contracts for which valuation must be provided. All of my IRA /Roth assets are marked to market daily because they are publicly traded.

 Valuation problems can also occur when investors engage in rarely used tax strategies. A few years ago I elected to transfer part of my distribution of employer stock in a 401k plan to a taxable account which allows the appreciation of the stock in excess of its cost basis when contributed to the plan during my employment to be taxed at capital gains rates if and when the stock is sold in the taxable account. The stock was transferred to the taxable account and I paid the income due on the cost basis reported on the 1099R.

About a year l noticed that the basis of the stock shares in the taxable account were valued at 0 instead of the cost basis in my brokerage account statements. I sent the 1099R with the cost basis information to the brokerage which adjusted the  cost basis of each share to $30.

 

 

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