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cost basis in rollover IRA account

Posted: Tue May 31, 2016 12:43 pm
by hudson4351
I have a rollover IRA account at Vanguard that came entirely from pre-tax 401k rollovers. I don't see any basis information for this account on Vanguard's website. Is there any reason I would ever need to know basis information for a deductible IRA (or Roth IRA)?

Re: cost basis in rollover IRA account

Posted: Tue May 31, 2016 12:55 pm
by cheese_breath
For your rollover IRA, no because it will be taxed as normal income when you withdraw it.

For your Roth, probably if you decide to withdraw your contributions before you've met the tax free criteria for earnings.

Re: cost basis in rollover IRA account

Posted: Tue May 31, 2016 4:07 pm
by retiredjg
There is no need to know "cost basis" of an IRA if all of the money is pre-tax. I don't even know if "cost basis" is a real term, but you seem to be meaning the money you put in there and that all of it is pre-tax.

"Basis" is a different thing though. In an IRA, "basis" represents money that has already been taxed. For example, if you made non-deductible contributions to an IRA, that would be "basis" or "already taxed money". That would be documented on a Form 8606 so that you don't have to pay tax on that money a second time.

Re: cost basis in rollover IRA account

Posted: Tue May 31, 2016 7:04 pm
by hudson4351
In a taxable account, Vanguard keeps track of individual lots when you make a purchase/contribution, so that when you sell you have the option of selecting particular lots to sell, which will affect the taxes owed. This information does not seem to exist on Vanguard's website for IRA accounts. I was just wondering if there is any reason to keep track of this for Roth IRAs or Rollover IRAs consisting entirely of pre-tax dollars.

Re: cost basis in rollover IRA account

Posted: Tue May 31, 2016 9:53 pm
by niven
retiredjg wrote:There is no need to know "cost basis" of an IRA if all of the money is pre-tax. I don't even know if "cost basis" is a real term, but you seem to be meaning the money you put in there and that all of it is pre-tax.

"Basis" is a different thing though. In an IRA, "basis" represents money that has already been taxed. For example, if you made non-deductible contributions to an IRA, that would be "basis" or "already taxed money". That would be documented on a Form 8606 so that you don't have to pay tax on that money a second time.
Agree that basis has no meaning in a traditional IRA unless you put in non-deductible contributions and of course report it on 8606. But let's not start correcting people on the term cost basis. While it's actually just basis, the term is widely used and even Vanguard and Fidelity define the term on their sites.

https://investor.vanguard.com/taxes/cost-basis/
https://scs.fidelity.com/webxpress/help ... asis.shtml

Re: cost basis in rollover IRA account

Posted: Tue May 31, 2016 9:59 pm
by Alan S.
hudson4351 wrote:In a taxable account, Vanguard keeps track of individual lots when you make a purchase/contribution, so that when you sell you have the option of selecting particular lots to sell, which will affect the taxes owed. This information does not seem to exist on Vanguard's website for IRA accounts. I was just wondering if there is any reason to keep track of this for Roth IRAs or Rollover IRAs consisting entirely of pre-tax dollars.
Basis does not exist on the VG site because basis of individual investments is not applicable to IRA accounts. There is no reason to track this information on your own either.

As indicated by retiredjg, basis in an IRA comes from non deductible contributions irrespective of any particular investment, but the IRA custodian does not track this. The IRA owner is responsible for tracking IRA basis by completion of Form 8606. For non Roth IRAs the 8606 is filed for the year of contribution. For Roth IRAs, the 8606 is filed for any year of a non qualified distribution.