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Should I Keep My Form 5498?

A reader writes in, asking:

“Each year Vanguard sends me form 5498 showing the amount I contributed to my Roth. Is there any reason to keep these? Since Roth contributions don’t even show up on my return, I wouldn’t think I’d need them in case of an audit.”

It’s true that Roth contributions don’t show up on your tax return (unless you’re claiming the retirement savings contribution credit, that is). But, yes, Form 5498 is still a form you’ll want to hang on to. In fact, depending on your circumstances, you may want to keep your Forms 5498 for a long time — much longer than just the 3-year statute of limitations for IRS audits.

To explain, let’s back up a step and talk about Roth IRAs in general. As you may recall, Roth IRA contributions can be withdrawn at any time, free from tax and penalty. It is only when you are withdrawing earnings (or amounts converted from a traditional IRA or 401k) that you have to jump through various hoops in order to avoid tax and penalty.

So, in the event that you want to take one of these tax-free distributions of Roth IRA contributions, how do you know (and how could you prove to the IRS) how much you’ve contributed to your Roth IRAs over the years? By looking at your Forms 5498.

And depending on how much you’re taking out of the account, you may have to go way back in order to prove sufficient contributions — which is why you’ll generally want to hang on to these forms at least until you’ve a) reached age 59.5 and b) had a Roth IRA for 5 years such that you could take out earnings free from tax and penalty as well.

If you’ve already thrown away your old Forms 5498, your brokerage firm may be willing to send you copies from prior years. (In some cases, even brokerage firms where you used to have an account will be able to send you tax forms upon request.) But, of course, the longer you wait, the less likely it is that they’ll still have the document you’re requesting.

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