Keeping Records

ZIP FOLDER - 3DKeeping records. It’s important to know what records to keep.  None of us wants to be inundated with piles of unnecessary paper, but we certainly don’t want to throw away something important.  In addition, every document with an account number or other important information is a risk exposure for identity theft.  Save what you need securely, and safely shred the rest.  But how do you decide which records you need to keep?  As with everything in financial planning, it depends.  In particular, with financial records, it depends on the type of account.

Taxable accounts:  Keep your trade confirmations to check against your annual form 1099, then shred.  Keep your forms 1099 with the relevant tax returns, as they will document your gains and losses for the tax year.  You need to keep track of the cost basis for every asset you hold.  Generally this information is known by the custodian where you purchased the asset, but if you have moved to a different custodian, or if the asset was received as a gift, sometimes this information is lost.  Prior to selling an asset, you should ascertain the cost basis so that you will only be taxed on the amount of gain on the sale.

Traditional IRA accounts:  Keep your trade confirmations to check against your statement, then shred.  You will not receive a form 1099 for a traditional IRA, as transactions in these tax-deferred accounts are not currently taxable.  All your distributions from a traditional IRA are going to be taxed at your ordinary income rate as they are withdrawn.  You need only keep track of contributions, especially any after-tax contributions, which are documented on IRS form 8606 and filed with your tax return.  This tracks the after-tax “basis” of your IRA, and is essential to avoid being taxed a second time on those post-tax contributions.  You need to keep this information for as long as you have the account. 

Roth IRA accounts:  Keep your trade confirmations to check against your statement, then shred.  You will not receive a form 1099 for Roth IRA either as transactions in these accounts do not generate currently taxable gains (or losses).  You don’t have to track after-tax contributions, because all the contributions will be after-tax, and all the distributions will be tax-free.  So what do you need to save?  There are special rules with a Roth IRA that allow you to withdraw your contributions only at any time, as long as the account has been established for at least five years.  Subsequent contributions do not re-start this five-year clock, but IRA conversions (traditional to Roth) do re-start the waiting period.  You need to keep track of contributions if there is any chance you may want to withdraw them prior to age 59 ½, so that you can document any distribution as a removal of contributions, not subject to taxation.  You should be cautious about doing any IRA-to-Roth IRA conversion if there’s any possibility that you might want to withdraw any contributions within the next five years.    

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If you need some help understanding the options in your particular situation, please don’t hesitate to call us at 408-551-6100 or toll free 800-927-8314 and ask to speak with one of our financial advisors or send us an email through the contact us section of our website.

Best Regards,

Retirement Capital Strategies
A Registered Investment Advisor
1190 Saratoga Ave, Ste. 140
San Jose, CA 95129
Tel (408) 551-6100

Source: This article was written by Margaret (Peggy) Stephan, CFP® – LPL Registered Representative at Retirement Capital Strategies.

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