KEEPING TRACK OF BASIS OF INDIVIDUAL SECURITIES (E.G. STOCKS, COMPANY STOCKS, ETFS, MUTUAL FUNDS) IN EMPLOYER SPONSORED RETIREME
A while ago, I submitted a post to the Discussion Forum regarding the need to keep track of the basis of individual securities in IRAs. It was as follows:
Is it ever necessary for tax purposes to keep track of the basis of individual securities (e.g. stocks, ETFs, mutual funds) in traditional (deductible or non-deductible), roth, or inherited IRAs? I understand that IRAs can have basis at the account level (tracked, for example, on Form 8606), but I’m talking about the individual security level, not the account level. Thank you.
I received the following response:
NO, THERE ARE NO TAX RELATED
Permalink Submitted by Alan-iracritic@… on Thu, 2019-08-15 14:04
No, there are no tax related reasons to track individual securities basis in an IRA. Many brokerages will provide this info in the same manner they do for taxable accounts, but the only purpose is for determining if the investment has performed well for you, not for any tax reasons. Even if you distribute a security as an in kind distribution to your taxable account, the basis of that security for purposes of later sale in the taxable account is the value on the date of distribution from the IRA. What you paid for it when purchased in the IRA is irrelevant.
I want to thank Alan-iracritic for this excellent and accurate response.
I have one follow up question:
Is it ever necessary for tax purposes to keep track of the basis of individual securities (e.g. stocks, company stocks, ETFs, mutual funds) in 401ks, 457s, or other employer sponsored retirement plans? Thank you.
Permalink Submitted by Alan - IRA critic on Thu, 2019-09-19 16:04
Basically, no. However, a 401k can hold highly appreciated employer shares eligible for NUA treatment. The plan should track the cost basis of these shares, with the excess value being NUA if you elected a qualified LSD. The plan then reports the amount of your cost basis and NUA on the 1099R reporting the LSD. If your plan administrator messed up this accounting along the way, it would affect your decision to utilize NUA or not. Normally, this would be alot of useless work since shares are being added to the account continuously, and you would not know the value when these shares were purchased for your 401k plan. So this is just an unlikely situation to consider if you really did not trust your plan administrator.