Resources : Managing Your Records

On the Record: Which account documents do you need to save?

How do you decide what to file and what to get rid of? None of us wants to keep piles of paper we don’t need, but how can we be sure we won’t need it in future? Here’s a guide on what do you need to keep and what can you safely shred. The records you’ll need can vary by the type of account you have.

For any account: Keep trade confirmations to check against your statement. Check your year-end statement for any discrepancies, if everything is reconciled you can shred your monthly statements and trade confirmations. I like to keep the year-end statement.

Taxable accounts: With this type of account, you need to be able to document your cost basis until each investment is sold. Check your statements to see if basis information is listed, if not contact your custodian and ask for it. Before selling an asset, make sure you can document basis so that you will be taxed only on the gain. Keep your form 1099 with the corresponding tax return, as this will be your documentation of taxable gains and losses.

Traditional IRA’s: You don’t get a form 1099 for a traditional IRA, as the transactions inside this account are not currently taxable. You also don’t have to track basis information, as there will be no taxable gains or losses in this account. All the distributions from this type of IRA are taxed at your ordinary income rate when you withdraw them. You do need to keep track of any after-tax contributions on IRS form 8606. This tracks the after-tax “basis” in your IRA, so you can avoid being taxed twice on those funds. You’ll need to keep the after-tax contribution information as long as you have the account.

Roth IRA’s: You don’t need to track basis information, as transactions in a Roth IRA don’t generate taxable gains or losses. You don’t need to file an 8606 for after-tax contributions because all the contributions to a Roth IRA are after-tax, and your distributions will be tax-free if you meet certain requirements. You do need to keep track of amounts and dates of contributions to your Roth IRA, as well as any conversions. There are special rules for Roth IRA’s that allow you to withdraw contributions at any time, as long as the account has been established for at least five years. Subsequent contributions don’t re-start the clock, but conversions do trigger a new five-year waiting period. If you’re going to withdraw funds from a Roth IRA early, you’ll need to document the amount of your contributions, and dates of any conversions.

Insurance and annuities: Keep the contract, along with any riders, and your most recent statement. If you liquidate an annuity in a taxable event, keep for three or six years with your tax records.

A note on storing and shredding documents: Storing paper records is bulky and time-consuming. Consider updating your document storage with a scanner and secure online storage with cloud backup. That way you can always find your records, and it frees up space. When you’re ready to shred, make sure you’re using a cross-cut or micro-cut shredder for security.

For information on retaining other types of records, see: Save, shred or recycle? Managing your documents safely

This information is not intended to be a substitute for specific individualized advice. We suggest that you discuss your particular situation with a qualified tax advisor.