An individual retirement account (IRA) has funds deposited in it while you are employed as a means of savings towards retirement. Deposits into a Roth IRA are normally made after taxes, which means that no additional tax will be owed at the time the money is withdrawn. Other types of IRAs, such as the SIMPLE and traditional IRAs, are funded with before-tax money, and taxes are paid when the money is withdrawn. It is important to be able to prove that taxes were paid on the money in a Roth IRA to avoid the possibility of being taxed twice for the same deposit.
Check that the receipt correctly shows the amount of your deposit and the amount of taxes that you paid. You should get a receipt for each individual deposit or transfer that you make. If the contribution was made as a payroll deduction, your pay stub is your receipt.
Save all of your deposit receipts. The IRS says that you can keep your records either in electronic or paper form, but the records must be kept for as long as they are applicable. With an IRA, this means until the account no longer exists, generally sometime after you retire.
Keep any supporting documents, such as the annual statement for your IRA account. Be sure the annual statement agrees with your receipts. Each year that you have an IRA, you should receive either a Form 5498, “IRA Contribution Information;” a Form 1099-R, “Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.” or a Form 8606, “Nondeductible IRAs.” In some cases you may receive more than one of these. The IRS considers these acceptable proof regarding IRA payments, taxes and distributions.
Provide copies of all receipts and statements, if you are asked to prove that you have paid taxes on the money in your IRA. If there is money in the account that was not taxed at the time it was added, be prepared to show how much was not taxed and where it came from. Your receipts and annual statements should contain the necessary information.
Ask the financial institution where your IRA is being held for help, if you don’t have everything you need. There should be records there that will reflect that you have paid taxes on the money in your IRA. They should be able to provide duplicate copies of all of your annual statements.
- Keep your receipts and statements in a safe location, where they are protected from loss and damage. Keep copies of all of your essential records in a separate location in case of fire or flood. A safe-deposit box or a fireproof document container kept with a trusted relative can help you to avoid tax problems should your original documents be destroyed.
- If you are unable to prove that you paid taxes on the funds in your IRA, the IRS may require you to pay taxes on that money again.
Items you will need
- IRA receipts
- IRA statements
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