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Basis in Roth IRAS


rfahey
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The financial institutions are advising that they do not track deposits ( what I would call basis ) into Roth IRA accounts.

So does that mean that every person will need to track their basis in their Roths ?

If so - most people do not retain their old statements and therefore do not have this figure. One fund company told me recently that they do not even retain statements prior to 2000 any longer.

If the above comments are true then how does a 50 year old for example figure his basis when he cashes in his Roth IRA account ??

THanks

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Maybe I am just confused, but why would you need a "basis" for a Roth IRA? Aren't the withdrawals exempt from taxes? I thought that one needs to know the basis for a distribution to be able to exclude the portion that represents return of basis from taxation.

Always check with your actuary first!

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Maybe I am just confused, but why would you need a "basis" for a Roth IRA? Aren't the withdrawals exempt from taxes? I thought that one needs to know the basis for a distribution to be able to exclude the portion that represents return of basis from taxation.

They are only tax exempt if they meet the 5 year rule + age 59.5 otherwise it is similar to after tax IRA with the exception that the basis is recovered first before any earnings.

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I am shocked, shocked, to hear that people with Roth IRAs ever cash them in before the later of 5 years or attainment of age 59.5! When I read the initial post, I naively presumed that the hypothetical 50 year was not going to withdraw anything until eligible to do so without penalty.

If they do wait until then, they don't need basis information, do they?

So to what extent should Roth IRA providers build their systems to accommodate people who will be cashing them in prematurely?

Always check with your actuary first!

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Perhaps it depends upon how badly they want to stay in the business. When enough clients start yelling, or brokers start putting the business elsewhere, they might just decide to do it a little better. It ain't that difficult.

A WHOLE LOT of people contribute to Roth IRA's due in part to the flexibility of FIFO accounting for contributions. They know they can always withdraw money in an emergency, or just to spend on anything that might strike their fancy.

I suspect some, or perhaps many/most, Roth IRA providers have the necessary accounting. But knowing this problem exists, it would be a good question to ask of any provider that a client might be considering.

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Some tax software will track your Roth basis it as long as you put the number in every year.

One tricky part of automated basis tracking is rollovers and transfers. The history doesn't move with the money. Of course that can also be true if the brokerage does a major system upgrade; had a little trouble when my dad got Alzheimers because the brokerage did the upgrade as a balance forward transaction.

Kurt Vonnegut: 'To be is to do'-Socrates 'To do is to be'-Jean-Paul Sartre 'Do be do be do'-Frank Sinatra

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I thought this as a requirement now for all financial institutions:

On October 3, 2008, legislation was passed under the Emergency Economic Stabilization Act of 2008 that has a substantial impact on many areas of the financial services industry. As part of the new legislation there will be more stringent requirements on financial intermediaries such as issuers, transfer agents, brokers, banks and mutual funds, to report customers’ cost basis in securities transactions to both their customers and the Internal Revenue Service (IRS).

http://www.amstock.com/shareholder/Cost_Basis_Reporting_2013.pdf

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