Investment or brokerage statements, including documentation of purchase of stocks, bonds, mutual funds and other investments
Keep the statements that show what you paid for each investment purchase, including any commissions or fees. If you reinvest dividends (use the dividends to automatically purchase new shares of the investment), you will also need records showing the dollar amount of those dividends. The sum of these items is your basis, or cost, in the investment. You will need these records to calculate your capital gain (profit) or loss when you sell the investment. If you sell only part of an investment (i.e. you own 300 shares of Mutual Fund ABC, and you sell 100 of those) keep records of your basis for that sale, so that you can calculate your basis and gain when you sell the remaining shares.
Recordkeeping for retirement plans became more important with the introduction of Roth accounts and the ability to roll money from one type of account to another, including conversions of tax-deferred money into Roth (after-tax) funds.
The main recordkeeping responsibility for the individual is to track any money in IRAs that is nontaxable – that is, money on which you have already paid taxes – so that you can avoid paying tax again when the money is distributed. This includes
- Contributions to a traditional IRA that you did not deduct from income. Contributions to a traditional IRA are nondeductible only if you
or your spouse are eligible to participate in an employer retirement plan and your income is above certain limits. (See IRS Publication 590 )
- Contributions to a Roth IRA.
- Money that was converted from a traditional IRA to a Roth IRA.
- Roth contributions from an employer plan that were rolled over to a Roth IRA.
- Traditional (pre-tax) contributions to an employer plan that were converted and deposited into a Roth IRA.
Report these amounts on Form 8606 and track them until you take the last distribution from your IRAs.
The IRS says you’ll also need to keep your 1040 from each year that you made a non-deductible contribution, all Forms 8606 that you filed together with their supporting documents, Form 5498 annual statements showing IRA contributions or account value after distributions, plus the 1099-R forms that document your distributions. Keep these papers until you withdraw the last dollar from your last IRA.
In Publication 552, the IRS advises keeping Forms 5498 and 1099-R even if your IRAs contain only deductible contributions and growth on which the taxes have been deferred, which will all be taxed at distribution.
Employer plans could also hold nontaxable amounts, including contributions to designated Roth accounts and – less commonly – nondeductible contributions. The IRS appears to put the recordkeeping burden for these accounts on the plan administrator, unless distributions are rolled over to an IRA and must then be reported on Form 8606.