Why You Need a Roth IRA Folder

Why You Need a Roth IRA folderTaxes are due tomorrow, April 18th! I hope you’re done and filed them already. I’m a terrible procrastinator when it comes to filing taxes. Our taxes were done a few weeks ago, but we didn’t completely finish reviewing everything until last weekend. Who wants to sit down and double check 40 pages of inane numbers?  That’s no way to spend a weekend. Mrs. RB40 has been putting it off, but she couldn’t any longer. Anyway, at least it’s done and sent off via e-file. However, during the course of doing taxes this year, I had a late epiphany. We need a Roth IRA folder, a physical old school folder to keep all the Roth IRA records. Why do you need a Roth IRA folder? Read on…

*Everyone should have a Roth IRA. It’s a great tax-advantaged account. If you don’t have one, then you might need to read this first – How to start contributing to a Roth IRA.

Roth IRA basics

If you don’t know about the Roth IRA, then buckle down and read this section thoroughly. It’s not the most exciting thing in the world to read about, but you will benefit greatly from understanding the Roth accounts especially if you plan to retire early. Feel free to skip to the next section if you’re an expert on the Roth IRA.

The Roth IRA is a tax-advantaged individual retirement account. You can invest after-tax income up to the maximum contribution limit every year. In 2016, the limit was $5,500. The great thing about the Roth IRA is that you don’t have to pay tax on the gains in this account (once you are 59 ½ years old.)

This is awesome because nobody wants to pay more taxes than they have to. You don’t have to pay the capital gain tax (generally 15%) with the Roth IRA. That’s only if you’re 59 ½, though. If you withdraw early, then there will be 2 stiff penalties.

  1. The 10% early withdrawal penalty.
  2. The IRS will tax the gain at your marginal tax rate.

That’s a lot of taxes and it’s best to avoid giving Uncle Sam too much money.

Early withdrawal without penalty

However, there is a way to access some of your Roth IRA early without having to pay the penalty. You can withdraw your contributions at anytime and not pay taxes. That’s the money you put into the account. Makes sense to me because we already paid taxes on those contributions. Remember, the Roth IRA investment is made with after-tax income. So if you retired early and want to withdraw some money, then make sure to withdraw just the contributions. That’s the way to avoid paying more taxes.

OK, here is where we are at so far. In our Roth IRA, there are 2 sections.

  1. Contributions – The money we invested. You can withdraw this anytime without paying any penalty.
  2. Gains – The gains from the investments. Once you turn 59 ½, then this portion will become tax free. If you withdraw early, then it will be taxed at your marginal rate AND you’ll have to pay the 10% early withdrawal penalty.

There is a 3rd thing that will really help early retirees – conversion from traditional IRA. This is when you convert the traditional IRA to Roth IRA. We’ll have to pay income tax when we do the conversion, though.

Why would we want to convert from the traditional IRA to Roth IRA? That’s because you’ll be able to avoid the 10% early withdrawal penalty after 5 years. This is called building a Roth IRA ladder. Mrs. RB40 wants to retire in a few years and this is how we plan to access our retirement accounts without paying the 10% early withdrawal penalty. Anyone planning to retire before 50 should seriously consider this option.

  1. Conversion from traditional IRA, 401(k), and other pre-tax accounts. After 5 years, this conversion will be considered as part of the contributions.

I hope this isn’t too confusing. You can read more about the Roth IRA withdrawal at the IRS if you are a masochist.

My Roth IRA

Now that we understand how the Roth IRA works, do you see why we need a Roth IRA folder? That’s because you’ll pay different taxes and penalties depending on what you withdraw. The IRS keeps track of your contributions, but they have been known to make mistakes. It’s best to keep track of the contributions yourself as well. We need to know how much we can withdraw without going into the penalty zone.

Roth IRA historyOk, doesn’t the brokerage keep track of all that stuff? Yes, they do. However, that’s only easy if you have just one brokerage. My Roth IRA has been at 6 brokerages! That’s way too many. Check it out.

I have my Roth IRA at Vanguard now. It was transferred from Firstrade a few years ago. However, I don’t remember where it was before that. I called Firstrade’s customer support and their record indicated that I had moved it from Ameritrade in 2007. I don’t remember this at all. My memory has never been that good on these kinds of things. I dug into our record and found that it was at Bidwell before that. Yikes!

To make it more complicated, I also contributed some money in my Roth 401(k) when I was an engineer. I rolled over my 401(k) to Etrade in 2012 when I left. Etrade split my 401(k) into a traditional IRA and a Roth IRA. Then in 2014, I moved them to Vanguard.

Vanguard merged the 2 Roth IRAs together. My Roth IRA is worth about $120,000 now and I need to figure out my contributions.

Paper, paper everywhere and nowhere

The brokerages send out a tax form to show how much you contribute to the Roth IRA every year. This is the IRS form 5498. However, I don’t think I ever received this form when I contributed to the Roth 401(k). I dug into our files and I only found a few of those 5498 forms from Bidwell and Ameritrade. A few probably got thrown out inadvertently or misplaced in some other files.

I found some old statements and some of those indicated how much contributions I made in certain years. Those helped a bit, but I still don’t have the whole picture. So I had to call Fidelity and TD Ameritrade to get my records. It took a while on the phone because I didn’t even remember what year I contributed to the Roth 401(k). My memory is pretty bad… Anyway, they found them and I requested a copy. When I get them, I’ll put everything in one file with a big label – Roth IRA. Whew!

These Roth IRA records are very important if you are going to retire early and it deserves its own folder. It was painful to pull them out from the tax and the brokerage files. Luckily, the brokerages were able to help. Bidwell went out of business, though. I have a few statements from that time so I think I’m okay there.

What I can withdraw

After going through all the records, it looks like I can withdraw $96,703 without paying taxes or penalties. (I made some early mistakes with my Roth IRA and it took a long time to recover and grow.) This money will come in handy when Mrs. RB40 retires. We can start building the Roth IRA ladder and we would be able to wait 5 years with this cushion. After that, we’ll convert the right amount from our traditional IRA to the Roth IRA every year. I think $25,000 would be a good amount for our current expenses. We’ll have to see what our finances look like after Mrs. RB40 retires.

This is how early retirees can access their retirement accounts without paying the 10% early withdrawal penalty. Everyone who considers early retirement needs to figure this stuff out.

Lastly, maybe I never kept those old 5498s because I didn’t think I was going to retire early. If you wait until 59.5, then you don’t need to deal with any of this. Everything in your Roth IRA will be tax free then. But, you never know what’s going to happen in the future so you should keep good records. 🙂 Especially if you’re forgetful like I am. Now, I need to go figure out Mrs. RB40’s Roth IRA… Her early Roth IRA was with her banks and the statements are not very clear. From what I saw, her old statements didn’t show the contributions… Figuring out her accounts will be even more tedious.

Do you have a Roth IRA? How do you keep track of your contributions? It’s best to have those 5298 forms because you never know when you’re going to need them.

If you haven’t tried Personal Capital yet, check them out. Personal Capital can help you keep track of all your investments in just one place. We have many accounts and Personal Capital helps us see the big picture quickly. I log on almost everyday to check on my bank and investment accounts. Unfortunately, they won’t help with the Roth IRA record keeping. You still need to do that yourself.

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Joe started Retire by 40 in 2010 to figure out how to retire early. After 16 years of investing and saving, he achieved financial independence and retired at 38.

Passive income is the key to early retirement. This year, Joe is investing in commercial real estate with CrowdStreet. They have many projects across the USA so check them out!

Joe also highly recommends Personal Capital for DIY investors. They have many useful tools that will help you reach financial independence.

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60 thoughts on “Why You Need a Roth IRA Folder”

  1. Great ideas for Roth users! Unfortunately, the Mr and I don’t have these and never had (now don’t qualify for contributions due to income) but it’s a great reminder to help get a good record system in place for our sons who contribute to Roth IRAs (teenagers, but have jobs).


  2. I (cheerfully) used some Roth basis this year to pay off a pesky debt. I had to track down my contributions though old year-end statements housed on my computer as well as more recent statements online. I put the basis into a spreadsheet for my records. Warning! I’ve done a couple of transfers and the new firm DID NOT have the cost basis correct. They counted an entire transfer in as basis, which I knew was not correct. Always check their numbers against your own records before taking a distribution.

  3. If you max it out every year, then it’s simple! Just look at the historical max contributions by year and add them all up. 😀

    Unfortunately I rolled over a Roth 401k into my Roth IRA and I haven’t a clue the portion of that which was earnings vs contributions. Still, can calculate the direct contributions pretty easily.

    • You should call your old company and see if they can send you the statement. I just got mine today. It really helps.
      You should also keep the paperwork. I read that the IRS’ record is a mess when you go that far back. The burden of proof is on you.

  4. Thank you for inspiring me to enter in all our Roth contributions into a spreadsheet. I know it will really make things easier for withdrawals in the future. I had to look back really far in the tax returns to find them all!

  5. Really a great article. I just learned about Roth IRAs ans self-directed IRAs at a meetup. Another good tool I’ve been using is Middleton Methods. They have a few podcasts about Money and retirement and they’ve helped me a lot you should go check it out and let me know your opinion on it.

  6. I definitely understand the headache of all this! I’m just now switching brokerages for my Roth for a third time. As a lesson learned from my previous switch, I made sure to download all my old statements and transaction history! Shortly after I had transferred brokerages that previous time, all my old documents became unavailable! I try to download everything routinely, but sometimes just can’t keep up. I just did a bulk download this time of EVERYTHING!

  7. My Roth ‘folder’ is online: a spreadsheet and an actual folder in google drive. I have to keep track of my Roth, Mr. BITA’s Roth (both backdoor Roth accounts) and Mr. BITA’s mega backdoor Roth. The spreadsheet helps to track the ‘seasoning’ of our contributions so that we know when it will be safe to withdraw those without tax penalties.

    • I made a spreadsheet too. It’s much easier than going through the paperwork. I still like to have the paper copy, though. I don’t think the IRS will accept a spreadsheet as evidence of our contributions…

  8. I totally needed this advice about 20 years ago when I started my Roth IRA. Of course I thought I would be at my job forever and that it would be status quo year after year (of work and contributions). A divorce, moving from one house to another and not being able to find paperwork has been a huge hassle. I moved all my money to Vanguard and my former large insurance company isn’t a big help trying to trace the money back now. I’m pretty sure I have the correct figures, so I’ll just leave the money now until I’m 59.5 to take the rest of my contributions and the gains out. (I took out some contributions a few years ago to pay off a rental. Roths’ aren’t a part of our retirement plan). Nice post (as usual) Joe!

    • Record keeping is tough when you move around. If you can wait until 59.5, then you don’t have to worry about anything. Everything will be tax free. Nice!

  9. THIS is now my weekend project. Great tip and something we really ought to have in place as a ‘double check’ on Vanguard’s record keeping. Who knows how far they’ll go back with records after 10, 20, 30 years with them….

    • Good luck! This is probably a better weekday project. The brokerages are closed on the weekend and you can’t get anyone on the phone.

  10. I wish I would have done this 10+ years ago when we started contributing. Ugh. I spend a good hour on the phone one day with Vanguard going through year by year. But of course, there is no documentation for the amounts I rolled into that account. That being said, I LOVE the idea of a Roth folder. It was have saved so much hassle! I suppose I better start now. Better late than never!

  11. Very helpful post Joe!

    I finished my taxes about a month ago. Boy were they *a lot* nicer in 2016 than they were in 2015. It pays to retire early! 🙂

    As far as how I organize all my information — I tend to use physical folders too, one for each year which I label and file with the rest. For the Roth conversions and regular contributions, I keep a spreadsheet for convenience…though I’ve yet to make any withdrawals.

    • Our taxes was relatively simple this year. The self employment part was a pain, but at least I don’t have MLP transfer or anything weird.

  12. I don’t think I have my early paperwork, but fortunately TDAmeritrade bought Datek around 15 years ago, so I should have a good history there. My wife has always been with USAA, so that’s pretty useful.

    I’m hoping that between military pension, second acts, and rental income we can retire early without needing to touch retirement accounts before age 59.5.

    • That’s the right way to do it. I think we’ll have to make some withdrawal earlier than 59.5 so we need to figure all this out.

  13. Great topic! This is something I’ve had on my list to do. I contributed to a Roth 401k at my old employer that I left 2.5 years ago, but don’t have records showing contributions vs investment growth. The company that serviced the account was bought out by another company since I left. I tried calling the new company but they have no records. It’s possible my former employer changed 401k providers after the company they used to use got bought out. I need to contact them to see who they use now so I can try to track down my records. It’s a pain, but better to do it now when I do t need to access the money.

    • Oh man, dig up your old statements. Hopefully, the IRS has those old records. I hope you find the right paperwork.

  14. Taxes are fun, aren’t they? I always file them on the last day possible – I never get a refund, because I never want to give the friendly tax authorities interest free loans.

    The conversion from IRA to Roth IRA can be quite messy. This is why the goal is to not have regular IRA’s when we are going to be doing Roth IRA Ladders. Instead, IRA’s will be/have been moved to a 401 (k) first.

    My goal is to have most of my money Rothified. The after-tax 401 (k) is a great help in this endeavour!


    • We’re actually getting a bit back this year.
      I have to call Vanguard and talk about the actual conversion process. I thought it’d be similar to 401(k) conversion.

    • “My goal is to have most of my money Rothified. The after-tax 401 (k) is a great help in this endeavour!”

      What exactly do you mean by this? After-tax 401 (k)? Do you mean Roth 401 (k)? Can that rollover into my Roth IRA when I’m done working at a certain company and be treated as my contributions? If that’s the case I seriously need to switch now.

      I guess I’m confused as to why a 401 (k) would be easier to do the Roth Ladder conversion than an IRA is….

      • Yes, I think he meant Roth 401k. I had a bit in my Roth 401k and was able to roll it into a Roth IRA when I left. No problem.
        Not sure why 401k would be different than traditional IRA in that respect (converting to Roth IRA.) I assume it should be similar.

  15. Joe:

    Thanks for this article! I think I will need to use this strategy of withdrawing my contributions. Of course, I have not tracked this (until 3 years ago I never even thought early retirement was a possibility), and my Roth has also gone through several institutions, like yours did. I am adding it to my ‘To Do’ list. And while it doesn’t look like it will be that much fun, it’s needed, so thank you!!!

    • This was my calculation, by year, it was a lot of work.
      Principal Calculation for Dan’s Roth IRA:

      1999 143.57 March 8, 1999 Roth conversion ($93.57) plus $50 in Roth contributions
      2000 450
      2001 675
      2002 6742.67 Roth conversion at Janus ($6262.67) plus $480 contributions at Putnam
      2003 300 Contributions to Janus, Janus also stated that there was a Roth to Roth transfer on February 14,2003 of $696.62
      2004 3000
      2005 400 Per Scottrade, account was transferred to Scottrade on 3/22/2005 (15,549.87) and transferred out in January 2006.
      2006 2700 Prior to November 2006, Account was at Scottrade
      2007 4000 November 2006-2011 Account was at tradeking
      2008 – Capital one is going to send me statements from November 2007-December 2008.
      2009 4000
      2010 2500 Value when transferred to Fidelity on January 16, 2011- 39399
      2011 5000
      2012 5000
      2013 –
      2014 –
      Total 34911.24

  16. I guess this might be another good reason for me not to bail on Quicken yet. I have every transaction recorded since I opened the account 12 years ago. I’ve also had my account at the same brokerage since the beginning so that probably helps make it a little less confusing as well.

    — Jim

    • I’d print out the Roth IRA record. I don’t trust the computer record that much. Who knows when the computer will break. Back up everything…

  17. I have to dissent a bit on this one. The Roth IRA is not a good vehicle for early retirement planners. We had one for years and it was a big mistake. I wrote an entire article about rescuing our Roth principle. After 2008, cap gains and dividend taxes went to 0% for those in the 15% federal tax bracket. That captures about 99% of early retirees. Therefore, the Roth IRA comes with a lot of extra restrictions, but no extra benefits for early retirees (prior to 59.5).

    On a side note, I do agree a Roth folder is a good idea. When we withdrew ALL of our principle to invest in taxable accounts, I had to call multiple brokerages, look back on old bank statements, to calculate our Principle amounts.

    • What about the Roth IRA ladder? You can access your 401(k) and traditional IRA without the 10% early withdrawal penalty. That’s a pretty good benefit. I like the 0% capital gain taxes too. It’s great for us.

      • The Roth ladder has its draw backs.

        1. You still need to have enough money to fund first five years of ER living expenses.
        2. When you convert an IRA, you pay taxes immediately on it. These are taxes that otherwise could be deferred. You can convert in your 0% tax bracket, but in your case, for a family of 3, that is only $24,750. I am guessing that’s far below your living expenses. So year 6 becomes a problem, unless you convert extra dollars in the 10 and 15% tax brackets. however, by paying taxes early on in your ER, that is money that could have been invested instead.

        This is all solved by having a HUGE chunk in taxable accounts, which are taxed at 0% if managed properly.

        For us, we are going to take penalty withdrawals, up to $28,000, and offset those taxes by 2k in child tax credits. The rest of our funding will come from taxable (taxed at 0%) accounts. Since we’ll be withdrawing IRA funds early on as part of our strategy, we will extend the life of our taxable nest egg, which is a goal of ours.

        • That’s true. Everyone will have to find a solution that works for them.
          1. We have income from our dividend, rentals, and blog. We could also withdraw our Roth contributions. This should be enough to fund 5 years of ER.
          2. I’ll have to sit down with my tax software and see how much we can convert without jacking up our tax. 10% really is not bad at all. That’s a lot better than my tax rate when I was working. We’ll probably have to move to a state with no income tax. That extra 6-10% is a big deal.

  18. Yikes! That’s confusing. I had my Roth IRA (rolled over from traditional) at Etrade for one year before rolling it over to Vanguard. In that one year all of the paperwork got messed up and it took months to get the paperwork sorted out on the right value for my rollover. I can’t imagine going through the many different layers that you have gone through! Glad you were able to get it all sorted out!

    • It was a huge headache to figure out. Hopefully the brokerages send the right paperwork. Then I can put them in my new Roth IRA folder and forget about it for a while. 🙂

  19. I really need to open and fund a Roth IRA. It has been on my to-do list for quite a while – about as long as I’ve been reading your articles. Thanks for the nudge, Joe. ~smile~

  20. Nice post. you guys look to be in great shape financially. We plan to implement the conversion ladder in to our early retirement in a few years and so I’m always interested in reading how well it is working for others.

    • We’re waiting until Mrs. RB40 retires. Even then, we’ll probably not convert much. If I still have online income, then we might pay too much taxes. I’ll have to go over the taxes very carefully when she retires.

  21. Our Roth’s are still at the same providers, so at least so far we just use the providers calculations. It’d also be a pretty easy calculation to us as we’ve only rolled one thing in over the years. I imagine though if things ever get complicated I’ll be right there with you on the folder.

    • Yes, you can’t contribute much to the Roth IRA so you need to ramp it up quickly. It will take a long time to build this account. Keep at it!

  22. Great post! I love the graphic. Very visual and organized. Mr. FAF and I haven’t opened a Roth IRA yet but we plan to this summer or later next year. Our family is now going through a big transition, so we need to stash some cash for emergency.

    Thanks for sharing this awesome guidance! 🙂

    • Good luck! The Roth IRA is a great account. Don’t put it off too long.
      We’re building our cash position too. 🙂

  23. It is so important to keep these IRA docs well organized. I had to refer back to previous years tax docs many times. It makes it so much easier.

  24. Joe, most helpful post on Roth’s for everyone to read. I know & love those Roth’s (thank you Mr. Roth!), but it’s always good to review, thanks!

    It sounds like, w/all your $ invested everywhere in the past, you have/had a problem w/too much money-ha,ha! I love how a phone call to Vanguard to ask a few questions, move and rollover investments, results in a simpler, consolidated, much better investing life.

    I know there’s a window of opportunity to convert traditional IRA’s to Roth IRA’s, such as before a certain age, but I have to read up and do more homework on that- my tax accountant said that sometimes it’s not worth it, just stay the course in traditional IRA’s. I will have to study this further – to convert or not to convert. Great post.

    • Vanguard is really great so far. Hopefully, I will stick with them until 59.5.
      We’ll probably convert just a little at a time. There is no point converting if you’ll have to pay a lot of taxes.

  25. I have been contributing to my Roth for the last 15 years or so but I have some rollovers and different things that I’ve done. I definitely need to start backing into how much money I’ve put in. Definitely an exercise that I haven’t done before. Thanks for the great reminder!!!

    • I got a huge headache from going over all the paperwork and calling the brokerages. It’s not fun, but necessary. Good luck!

  26. Joe, I’ve been maxing out a Roth IRA for the past 15 years or so, and we do so for my wife as well. I did make some mistakes with my Roth portfolio (I used it as my trading account) and the returns haven’t been there (which of course defeats the purpose). So, I’m trying to figure out if it makes more sense to convert it back out or leave it be and get a lot more conservative with it. Thankfully my wife’s is much more balanced and has had some significant gains.

    • My Roth IRA only has low cost index funds now. No more craziness there. My wife’s Roth is better too. It’s just much better to be a slow and steady investor in these accounts.

  27. You ask, “Do you have a Roth IRA?” No, but that’s because I live in Canada. I am sure I have some equivalent but I am pretty lackadaisical about my retirement savings and investments. (That’s okay because I am still doing better than 97 percent of people my age.)

    You also say, “Taxes are due tomorrow, April 18th! I hope you’re done and filed them already. I’m a terrible procrastinator when it comes to filing taxes.”

    I am actually more of a “terrible procrastinator” than you. Here is why: In Canada, tax returns aren’t due until the end of April. In 2015, I paid just over $107,000 in income taxes to Revenue Canada. For 2016, Revenue Canada was requesting installments for a total of $107,000. I knew that my 2016 income would be lower than in 2015 but the tax rates for both Canada and Alberta went up substantially for 2016. So for my last installment in December, just to be safe, I sent enough so there was a total of $100,000 for the year. About two weeks ago I used Studio Tax and found out that I will be getting back a refund of just over $20,000. Yet I have been in no hurry to complete and send in my tax return. I intend to this, however, before next week when I fly to New York to make a presentation about “How to Retire Happy, Wild, and Free” to 300 members of the New York Police Department and then stop in Toronto for a few nights. I don’t want to come back to Edmonton and have only three or fours days to complete the tax return.

    As an aside, I would like to share this article I came across in the Business Insider on Sunday:

    10 Things That Surprised This Retiree about Early Retirement at 52.


    Here is the summary of the 10 Things:
    1. Mondays became the best day of the week.
    2. My colleagues can’t accept I’m retired.
    3. I’m busier than ever.
    4. I’m in the best physical shape of my life.
    5. I’ve gotten very comfortable wearing casual clothes.
    6. My family relationships are much better.
    7. I’m learning and growing more than ever.
    8. I can’t go back to work anymore.
    9. The stress is gone.
    10. I’ve turned into a morning person.

    I am fine with the first 9. I cannot understand, however, why anyone would become a morning person in retirement. For the record, I am posting this comment at around 2:30 AM and will likely sleep in until noon.

    • Wow, that’s a lot of taxes. That means you make a ton of money, right? Enjoy your trip to NY.
      I read that article last week. It didn’t work out that well for me because I’m very busy with my kid. Still a lot better than working, though.


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