Actually calculating costs basis over 40 year period

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rocketrex
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Actually calculating costs basis over 40 year period

Post by rocketrex » Wed Jun 12, 2019 5:01 pm

So I just had this thought bomb drop in my head. How does one actually keep track of cost basis over a lifetime of investing? For example, when the time comes to start taking withdrawals from one of my 401k or IRA's in 30 years, there is no way I'm going to know all of the different cost basis. Sure I will now the cost basis at the current (at the time) brokerage/firm I have it with, but what about all of the different transfers/etc from one brokerage firm or 401k provider to another over an entire working career? For example, you change jobs say 5 times and each job has a different 401k provider and each time the assets are liquidated from the old 401k and then used to buy new funds in the new 401k. Obviously the original cost basis doesnt carry over. Same goes for IRA accounts, over a 30-40 period with different brokerages closing/opening and all of the transfers that take place, how would you actually keep track of all of those basis'. Doesn't seem doable to me. Yes if it was a 10-15 year period, maybe, but over 30-40 years it seems pretty unlikely that you can get your hands on that old of data from brokerages that may more may not even still be open anymore.

I'm I thinking about this wrong?

livesoft
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Re: Actually calculating costs basis over 40 year period

Post by livesoft » Wed Jun 12, 2019 5:10 pm

One doesn't need to know the cost basis of an IRA or 401(k) unless one makes non-deductible tIRA contributions. And if one is making non-deductible tIRA contributions, then one has been filing IRS Form 8606 every year that one made a non-deductible IRA contribution in order to track the cost basis.

Now if one wants to track cost basis and performance, then one must keep every single year a list of the transactions that year. In the old days this could come from a printout of the year-end or annual summary statement.
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retiredjg
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Re: Actually calculating costs basis over 40 year period

Post by retiredjg » Wed Jun 12, 2019 5:15 pm

rocketrex wrote:
Wed Jun 12, 2019 5:01 pm
So I just had this thought bomb drop in my head. How does one actually keep track of cost basis over a lifetime of investing? For example, when the time comes to start taking withdrawals from one of my 401k or IRA's in 30 years, there is no way I'm going to know all of the different cost basis.
Cost basis (what I bought those shares for) is irrelevant inside a 401k or an IRA. When you withdraw money that has not been taxed before, you will pay tax on it and on its earnings at the rates that apply to you when you withdraw it.

Example....over your lifetime you contribute $250k to a 401k and it grows to $500k by the time you want to withdraw it many years later. If all your contributions were tax-deferred (you didn't use Roth 401k) then all of the money - both contributions and earnings - have never been taxed. They will be taxed as you withdraw the money.

In a traditional IRA, the situation is the same unless some or all of your contributions were non-deductible. In a case like that, if you have properly documented your non-deductible contributions, you will pay tax on part of your withdrawal and no tax on part of your withdrawal.

If you are wondering about Roth IRA, you will pay no tax if the IRA itself is 5 tax years old and you are 59.5 years old and disabled.

There can be more involved. Digest this and then come back with more questions.

Broken Man 1999
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Re: Actually calculating costs basis over 40 year period

Post by Broken Man 1999 » Wed Jun 12, 2019 5:24 pm

retiedjg nailed it.

Where you do need to know cost basis is in taxable accounts.

Look up these two terms, "covered shares" and "non-covered shares."

Depending on when you started your taxable account, you may be able to get the info from the brokerage, as they are required to keep records for you. But they didn't used to be required to keep that info for you.

Broken Man 1999
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delamer
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Re: Actually calculating costs basis over 40 year period

Post by delamer » Wed Jun 12, 2019 5:30 pm

Withdrawals from traditional 401(k)s and IRAs are taxed as ordinary income.

Unlike with taxable accounts, there is no reduced tax rate pertaining to qualified dividends or long-term capital gains for tax-deferred withdrawals. Therefore, cost basis information is irrelevant for tax-deferred accounts.

(If you had any non deductible IRA contributions, then there will be a reduction in the portion of the withdrawal taxed but not in the tax rate.)

dbr
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Re: Actually calculating costs basis over 40 year period

Post by dbr » Fri Jun 14, 2019 10:16 am

livesoft wrote:
Wed Jun 12, 2019 5:10 pm
One doesn't need to know the cost basis of an IRA or 401(k) unless one makes non-deductible tIRA contributions. And if one is making non-deductible tIRA contributions, then one has been filing IRS Form 8606 every year that one made a non-deductible IRA contribution in order to track the cost basis.

Now if one wants to track cost basis and performance, then one must keep every single year a list of the transactions that year. In the old days this could come from a printout of the year-end or annual summary statement.
My employer retirement investment plan actually holds some after tax contributions to an employer plan. They have been tracking that for me ever since. I think there is some sort of pre-1986 rule involved.

Otherwise, yes, I have some paper in files that has basis information that goes back over a lifetime. The "get out of jail free" card is to let someone inherit certain holdings and set the basis as date of death, etc.

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grabiner
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Re: Actually calculating costs basis over 40 year period

Post by grabiner » Fri Jun 14, 2019 10:03 pm

You keep a spreadsheet (or use accounting software, which does the equivalent). Here is a link to several of my spreadsheets You don't need to pay for Microsoft Office; these spreadsheets work fine on OpenOffice.
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