In regard to tax forms, keep a copy is the best policy. There are two important documents that most retirement account users will receive over the years, forms 5498 and 1099-R. You may not receive one of these every year. If you receive one, it is a good idea to keep a permanent copy in a secure location. You can get a copy digitally from most custodians like Interactive Brokers. If you don’t keep records of these forms you may limit your ability to take full advantage of your retirement accounts.
This form keeps records of the ways money enters your retirement accounts. Whether a deposit is due to a contribution, rollover, conversion, or transfer this will record it. Unlike many forms you typically won’t get this one until after you file your taxes. Your brokerage firm is required to submit this form to the IRS by May 31st, after the typical April 15th tax filing deadline.
Why is it so important? I’ll give you one common example. Imagine you contribute $6,000 per year to a Roth IRA for 10 years. With investment profits of $40,000 and your $60,000 of contributions you have $100,000 in this Roth IRA. Did you know that since you already paid taxes on the original $60,000 you contributed it can be withdrawn tax and penalty free before retirement? However, you will need to keep copies of your form 5498 as evidence that you really did contribute the $60,000. Always keep a copy!
This form will keep track of the withdrawals you have from retirement accounts. Whether the withdrawal was due to a conversion, transfer, early withdrawal, late withdrawal this form will keep track of all withdrawals. Form 1099-R is typically available online or via mail from Interactive Brokers by January 31st.
Keeping records of forms 1099-R and 5498 will ensure you have the documents you need to properly file taxes, and have the evidence needed to maximize the benefits of your retirement accounts.