How to prove old Roth contributions?

[Markola]

We are not yet age 59.5 and might like to withdraw our original Roth IRA contributions to do something else with the money. Does anyone else have experience with this process, know what documentation will be required, and know who will need to see it? We started contributing in the late 1990s when Roths first appeared, which was three brokerage firms ago, so the paper trail is scant. Also, who will need to see proof? Our CPA? Our current brokerage firm where the Roths reside? The IRS proactively or only in the event of an audit? Thanks for any counsel.

 

[cathy63]

You only need proof if the IRS asks for it. Your current brokerage will issue a 1099 with the code for "early distribution, no known exception". You fill out part III of form 8606 and file it with your return.

 

[cat4ever]

yes, I do have experience with this, and the IRS wanted proof. this was in 2017, and I had withdrawn 70K from a Roth conversion I'd done back in 1998 with 128K. LUCKILY I still had the paper copy of my tax forms from almost 20 years ago, without that I'd have been hosed. I sent them a copy of whatever form showed the original 128K deposit and they were happy with it. That old piece of paper suddenly become worth about $30K. If you do a Roth conversion keep those old 1040's etc from when you did it, no matter how old.

I do want to note that the IRS originally sent me a bill for $30K+ in taxes and penalties, they assumed the withdrawal was not principal, so they either didn't have the records themselves, or they didn't want to bother looking for them. It was quite a shock when I got this, and I honestly was very surprised and relieved I was able to find that old return. Also, don't depend on your tax software to still run on your computers in the future, always get a printout and/or at least a PDF.

 

[cathy63]

Roth contributions will not appear on an old tax return, you would need brokerage statements, 5498s, or some other contemporaneous record to prove them.

Roth conversions are on part II of form 8606 and that would work if you were withdrawing those funds.

 

[Fermion]

Uhg, I may have to get into this in the future as we have used up a lot of easy taxable money building a house during a time where you shouldn't be building a house.

funny that all the brokerage houses encouraged me to "go paperless!" and yet they don't keep digital records back more than a few years. Sigh.

 

[Montecfo]

^^^^ well, yes, paperless is a huge benefit....to financial institutions who can save ink, paper and postage.

 

[cathy63]

yes, I do have experience with this, and the IRS wanted proof. this was in 2017, and I had withdrawn 70K from a Roth conversion I'd done back in 1998 with 128K. LUCKILY I still had the paper copy of my tax forms from almost 20 years ago, without that I'd have been hosed. I sent them a copy of whatever form showed the original 128K deposit and they were happy with it. That old piece of paper suddenly become worth about $30K. If you do a Roth conversion keep those old 1040's etc from when you did it, no matter how old.

I do want to note that the IRS originally sent me a bill for $30K+ in taxes and penalties, they assumed the withdrawal was not principal, so they either didn't have the records themselves, or they didn't want to bother looking for them. It was quite a shock when I got this, and I honestly was very surprised and relieved I was able to find that old return. Also, don't depend on your tax software to still run on your computers in the future, always get a printout and/or at least a PDF.

I am just curious, when you filed your 2017 tax return, did you include form 8606 with part III filled out? That's how the IRS would know whether your Roth IRA withdrawal was taxable or not. I'm surprised they'd send a letter assessing tax if you did include an 8606 in your return showing a $0 on line 25. Usually they'd only do that if the 8606 was missing.

 

[jebmke]

Don't Roth contributions show up on 5498s? I know Trad IRA ones do but I've only made conversion deposits in Roths.

 

[cat4ever]

I am just curious, when you filed your 2017 tax return, did you include form 8606 with part III filled out? That's how the IRS would know whether your Roth IRA withdrawal was taxable or not. I'm surprised they'd send a letter assessing tax if you did include an 8606 in your return showing a $0 on line 25. Usually they'd only do that if the 8606 was missing.

Looking back at my turbo tax forms from 2017, it looks like I didn't. My Roth is at Etrade, and I have a copy of the consolidated 2017 1099 from Etrade, but it doesn't include a 1099-R. Perhaps the 1099-R wasn't yet available when I downloaded the consolidated 1099 and I just assumed the consolidated would have everything I needed and never checked again as I blindly entered my form info into Turbo Tax. I'm assuming entering the 1099-R showing the withdrawal is what would have made Turbo Tax include an 8606.

What's interesting is now when I go to Etrade, they have the 1099-R document from 2017 available, but they don't have the 2017 consolidated 1099 (or any other 1099) that I have a copy of on my local hard drive.

 

[cat4ever]

I am just curious, when you filed your 2017 tax return, did you include form 8606 with part III filled out? That's how the IRS would know whether your Roth IRA withdrawal was taxable or not. I'm surprised they'd send a letter assessing tax if you did include an 8606 in your return showing a $0 on line 25. Usually they'd only do that if the 8606 was missing.

Wondering if it would be good to file an amended return, or just let sleeping dogs lie?

 

[cathy63]

Wondering if it would be good to file an amended return, or just let sleeping dogs lie?

Since you're dealing with another potential Roth withdrawal in your other thread today, I'd wait and see what happens with that before doing anything and then straighten it out all at once.

The way form 8606 works is that you always go back to the last time you filed one, however many years ago it was, and you use some numbers from that to fill out the current one. The info you sent the IRS in 2017 was apparently enough for them to figure out what your 8606 from that year should have looked like, so you could just do one for that year and keep it in your files. Then next time you need one, start from the 2017 form.

 

[Montecfo]

Looking back at my turbo tax forms from 2017, it looks like I didn't. My Roth is at Etrade, and I have a copy of the consolidated 2017 1099 from Etrade, but it doesn't include a 1099-R. Perhaps the 1099-R wasn't yet available when I downloaded the consolidated 1099 and I just assumed the consolidated would have everything I needed and never checked again as I blindly entered my form info into Turbo Tax. I'm assuming entering the 1099-R showing the withdrawal is what would have made Turbo Tax include an 8606.

What's interesting is now when I go to Etrade, they have the 1099-R document from 2017 available, but they don't have the 2017 consolidated 1099 (or any other 1099) that I have a copy of on my local hard drive.

The 1099R would be from a different account than your taxable. So I would expect you would get a 1099B from your taxable and 1099R from the IRA. The consolidation part is account by account.

If you go to the tax documents section, the 1099B will be under your taxable account. The 1099R under your IRA.

 

[cat4ever]

The 1099R would be from a different account than your taxable. So I would expect you would get a 1099B from your taxable and 1099R from the IRA. The consolidation part is account by account.

If you go to the tax documents section, the 1099B will be under your taxable account. The 1099R under your IRA.

Ah, yes, duh. I don't think at the time I knew what a 1099-R was, so I probably never checked the Roth account for a tax document, although I did know enough to keep all the transaction records of the withdrawal.

but I think I've hijacked the OP's thread, so no more about my subject please, although this has been very enlightening for me if not for the OP.

 

[gauss]

Looking back at my turbo tax forms from 2017, it looks like I didn't. My Roth is at Etrade, and I have a copy of the consolidated 2017 1099 from Etrade, but it doesn't include a 1099-R. Perhaps the 1099-R wasn't yet available when I downloaded the consolidated 1099 and I just assumed the consolidated would have everything I needed and never checked again as I blindly entered my form info into Turbo Tax. I'm assuming entering the 1099-R showing the withdrawal is what would have made Turbo Tax include an 8606.

What's interesting is now when I go to Etrade, they have the 1099-R document from 2017 available, but they don't have the 2017 consolidated 1099 (or any other 1099) that I have a copy of on my local hard drive.

You can get copies of the most recent 10 years of 1099-R / 5498 and other tax documents as part of a Wage and Income Transcript for free from the IRS. Be sure to specify the Wage and Income type if you seek the 1099-R/5498 documents as the other types will not contain this.

I immediately did this when I realized the record keeping requirements to take a nonqualifed Roth distribution (ie one before age 59 1/2 or before having a Roth account established for 5 years) that avoids an early withdrawal penalty.

-gauss

 

[teej1985]

Don't Roth contributions show up on 5498s? I know Trad IRA ones do but I've only made conversion deposits in Roths.

They do. 5498's are also generated for conversions. I've saved all mine and uploaded copies to FidSafe. I also have a spreadsheet to keep track of my basis.

 

[Markola]

OP here and I appreciate all the educational feedback. I do have paper folders with our tax returns and all related receipts, etc. going back to the mid 1990s, and there are bits of paper showing a significant Roth conversion we did.

Am I looking for old 5498s?

 

[cathy63]

OP here and I appreciate all the educational feedback. I do have paper folders with our tax returns and all related receipts, etc. going back to the mid 1990s, and there are bits of paper showing a significant Roth conversion we did.

Am I looking for old 5498s?

5498s will show your Roth contributions. 1099-Rs and 5498s will show Roth conversions.

I think the easiest way to figure your Roth basis is to make a spreadsheet with one row for each year. Make a column for contributions and one for conversions. Then you can sum the contributions and conversions older than 5 years to get the amount that can be withdrawn penalty free on any given date.

 

[FindingForward]

^^^^ well, yes, paperless is a huge benefit....to financial institutions who can save ink, paper and postage.

It's also a common recommendation from "experts". Every year around tax time, I see national columnists and financial advisors tell people they can toss records after 1 year, 3 years or 6 years (varying, based upon the item itself.)

I have records going back 30 years and I'd love to purge them all, but can't count how many times I had to do a deep dive into paperwork from 10 or 20 years ago to fetch something that the experts all assured me I wouldn't need.

 

[ncbill]

And on the other side of the equation, those of us waiting until after we turn 59 1/2 to begin withdrawals from our Roth accounts don't need to keep track of previous contributions or file any forms?

 

[gauss]

OP here and I appreciate all the educational feedback. I do have paper folders with our tax returns and all related receipts, etc. going back to the mid 1990s, and there are bits of paper showing a significant Roth conversion we did.

Am I looking for old 5498s?

IMHO, Having the 5498s would be a sufficient but not necessary requirement to do this. Brokerage statements etc would also sufice if they show the date and amount of Roth IRA Contributions / Conversions and rollovers from Employer plans (ie 401ks).


What you need to be able to do is to determine your contribution basis in the Roth IRAs. You will need to come up with this number and place it into your tax return (8606 - part 3 /line 22 I think) which you sign.

Any reasonable documentation that shows how you came up with that number SHOULD in theory satisfy an IRS inquiry into this.

The 5498s are convenient because they are issued by the IRA custodians and document the IRA contributions (among other things). They are also available for the last 10 years from the IRS for free as previously described.

-gauss
p.s. Please note that contributions and conversions are tracked separately. Contributions can be withdrawn immediately without penalty. Conversions, on the other hand, need to satisfy a 5 year waiting period -- defined for each conversion separately. Also, contributions come out first -- Conversions only come out after the contribution basis has been redeuced to zero.

 

[SecondCor521]

And on the other side of the equation, those of us waiting until after we turn 59 1/2 to begin withdrawals from our Roth accounts don't need to keep track of previous contributions or file any forms?

You don't need to keep track of previous contributions as long as you meet the rule of having opened a Roth IRA at least five years earlier, which most people here probably have.

If you don't meet that requirement, then you'd need to both keep track of your contribution basis, your conversions, and file Form 8606 with Part III filled out.

 

[gauss]

It's also a common recommendation from "experts". Every year around tax time, I see national columnists and financial advisors tell people they can toss records after 1 year, 3 years or 6 years (varying, based upon the item itself.)

I have records going back 30 years and I'd love to purge them all, but can't count how many times I had to do a deep dive into paperwork from 10 or 20 years ago to fetch something that the experts all assured me I wouldn't need.

+1

Conventional Wisdom is often to the detriment of the individual in my experience.

 

[RetireAge50]

Last year we used all of our contribution and old conversion money to buy a house. We had a spreadsheet so we knew exactly what those amounts were.
On our tax return we just told the software (freetaxusa) what we did and they filled in the appropriate forms. No other documentation was required.

 

[Markola]

All good to know, everyone. This forum is a valuable resource of expertise. I will let our CPA recover from April 15 and then take several years of old tax returns to talk through with her. Thanks!