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401(k) cost basis
Announcing the arrival of Valued Associate #679: Cesar Manara
Unicorn Meta Zoo #1: Why another podcast?Moving money between Roth IRA and employer's 401(k)Cost basis allocation question: GM bonds conversion to stock & warrantsCould excess 401(k) contributions be used to game/maximize matches from different employers?401(k) Investment stategiesAre there any circumstances in which unvested employer 401(k) contributions revert to the employee?1099-B, box 5, how to figure out cost basis?How can I protect my 401(k) when the stock market is performing badly?Keeping track of “out of pocket” cost basisIf your 401(k) doesn't match contributions, should you max out your IRA contributions before contributing to it?Broker got basis wrong on 1099B
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}
My first 401(k) started in the early 1990s with some employer matching funds. Since then, there have rollovers, more 401(k)s, and lost records. Aside from a really rough estimate, what happens when the 401(k) cost basis is unknown?
united-states 401k cost-basis
edited 13 hours ago
Nathan L
30.3k1675132
asked yesterday
CWallachCWallach
864
add a comment |
My first 401(k) started in the early 1990s with some employer matching funds. Since then, there have rollovers, more 401(k)s, and lost records. Aside from a really rough estimate, what happens when the 401(k) cost basis is unknown?
united-states 401k cost-basis
edited 13 hours ago
Nathan L
30.3k1675132
asked yesterday
CWallachCWallach
864
add a comment |
My first 401(k) started in the early 1990s with some employer matching funds. Since then, there have rollovers, more 401(k)s, and lost records. Aside from a really rough estimate, what happens when the 401(k) cost basis is unknown?
united-states 401k cost-basis
edited 13 hours ago
Nathan L
30.3k1675132
asked yesterday
CWallachCWallach
864
My first 401(k) started in the early 1990s with some employer matching funds. Since then, there have rollovers, more 401(k)s, and lost records. Aside from a really rough estimate, what happens when the 401(k) cost basis is unknown?
united-states 401k cost-basis
united-states 401k cost-basis
edited 13 hours ago
Nathan L
30.3k1675132
asked yesterday
CWallachCWallach
864
edited 13 hours ago
Nathan L
30.3k1675132
asked yesterday
CWallachCWallach
864
edited 13 hours ago
Nathan L
30.3k1675132
edited 13 hours ago
Nathan L
30.3k1675132
edited 13 hours ago
Nathan L
30.3k1675132
30.3k1675132
asked yesterday
CWallachCWallach
864
asked yesterday
CWallachCWallach
864
asked yesterday
CWallachCWallach
864
864
add a comment |
add a comment |
3 Answers
3
active
oldest
votes
Unless you made after tax contributions your basis is zero and all distributions are taxable income. If the cost basis is unknown it would be treated as if it were zero. Relatively few 401(k) plans allow after tax contributions and its likely that you would know if you had made them.
I’m referring to after tax contributions to a traditional 401(k) plan not designated Roth contributions. After tax contributions are allowed and would mean the earnings on those contributions would be taxable as ordinary income when withdrawn but the original contribution would not be.
edited 16 hours ago
JoeTaxpayer♦
148k23238478
answered 20 hours ago
T. M.T. M.
1,188211
1
After tax contributions can be rolled into a Roth IRA when you switch jobs or retire.
– Nathan L
13 hours ago
@NathanL Yes, or when withdrawn as an in-service withdrawal if the plan allows those as well, but that wasn't what the question was about so I didn't mention that. Also certain merger/buyout situations can trigger the ability to rollover 401(k) balances.
– T. M.
9 hours ago
add a comment |
Cost basis doesn't matter because all distributions are:
- taxable in traditional retirement accounts.
- non-taxable in roth accounts.
Contributions are relevant to roth accounts because you can take those back within certain parameters without any penalty.
answered 23 hours ago
quidquid
39.5k876129
3
That’s not true if there were after tax contributions.
– T. M.
20 hours ago
3
@T.M. I don't understand your comment here. After-tax contributions to a 401(k) are usually to a Roth 401(k) are you referring to something else?
– Nathan L
13 hours ago
2
@NathanL: Yes, there's a third type of 401(k) which is an after-tax (contributions beyond the now-19k annual limit).
– Ben Voigt
13 hours ago
@BenVoigt wouldn't most people just roll those to a Roth IRA when they retire or switch jobs?
– Nathan L
13 hours ago
1
@NathanL: Mostly correct. The cost basis matters at the moment of rollover because it determines how much of the after-tax account rolls to traditional IRA and how much to Roth IRA.
– Ben Voigt
12 hours ago
add a comment |
A 401(k) plan is a qualified retirement plan. This means that as long as you follow all the rules and only roll funds to other qualified retirement plans, you don't need to worry about the cost basis of any purchases, because you won't pay any taxes on any of the investments (capital gains, etc.) while your money remains in those qualified plans.
As quid mentioned earlier, you will only pay taxes (depending on the type of plan) when the funds are withdrawn, not when individual investments are bought or sold. (Nor when dividends are paid.)
The special rules that you want to pay attention to with these qualified plans are related to contribution limits, rollovers, and especially withdrawals. Those rules are amply covered in other answers here, but you should become familiar with the advantages and disadvantages of each type of plan.
answered 13 hours ago
Nathan LNathan L
30.3k1675132
"As quid mentioned earlier, you will only pay taxes (depending on the type of plan) when the funds are withdrawn" - and do you need the cost basis at that time, or is it not used in the calculation?
– Don Branson
7 hours ago
@DonBranson cost basis is the wrong term here, but generally no. If it's in a traditional account (pre-tax contributions) then you will pay tax when you withdraw because that's money you were never taxed on. In Roth accounts, you paid in post-tax, and the original contributions are available in a variety of circumstances, and the gains are available tax free at retirement time.
– Nathan L
7 hours ago
Thanks. :) That helps clarify.
– Don Branson
7 hours ago
add a comment |
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3 Answers
3
active
oldest
votes
3 Answers
3
active
oldest
votes
active
oldest
votes
active
oldest
votes
Unless you made after tax contributions your basis is zero and all distributions are taxable income. If the cost basis is unknown it would be treated as if it were zero. Relatively few 401(k) plans allow after tax contributions and its likely that you would know if you had made them.
I’m referring to after tax contributions to a traditional 401(k) plan not designated Roth contributions. After tax contributions are allowed and would mean the earnings on those contributions would be taxable as ordinary income when withdrawn but the original contribution would not be.
edited 16 hours ago
JoeTaxpayer♦
148k23238478
answered 20 hours ago
T. M.T. M.
1,188211
1
After tax contributions can be rolled into a Roth IRA when you switch jobs or retire.
– Nathan L
13 hours ago
@NathanL Yes, or when withdrawn as an in-service withdrawal if the plan allows those as well, but that wasn't what the question was about so I didn't mention that. Also certain merger/buyout situations can trigger the ability to rollover 401(k) balances.
– T. M.
9 hours ago
add a comment |
Unless you made after tax contributions your basis is zero and all distributions are taxable income. If the cost basis is unknown it would be treated as if it were zero. Relatively few 401(k) plans allow after tax contributions and its likely that you would know if you had made them.
I’m referring to after tax contributions to a traditional 401(k) plan not designated Roth contributions. After tax contributions are allowed and would mean the earnings on those contributions would be taxable as ordinary income when withdrawn but the original contribution would not be.
edited 16 hours ago
JoeTaxpayer♦
148k23238478
answered 20 hours ago
T. M.T. M.
1,188211
1
After tax contributions can be rolled into a Roth IRA when you switch jobs or retire.
– Nathan L
13 hours ago
@NathanL Yes, or when withdrawn as an in-service withdrawal if the plan allows those as well, but that wasn't what the question was about so I didn't mention that. Also certain merger/buyout situations can trigger the ability to rollover 401(k) balances.
– T. M.
9 hours ago
add a comment |
Unless you made after tax contributions your basis is zero and all distributions are taxable income. If the cost basis is unknown it would be treated as if it were zero. Relatively few 401(k) plans allow after tax contributions and its likely that you would know if you had made them.
I’m referring to after tax contributions to a traditional 401(k) plan not designated Roth contributions. After tax contributions are allowed and would mean the earnings on those contributions would be taxable as ordinary income when withdrawn but the original contribution would not be.
edited 16 hours ago
JoeTaxpayer♦
148k23238478
answered 20 hours ago
T. M.T. M.
1,188211
Unless you made after tax contributions your basis is zero and all distributions are taxable income. If the cost basis is unknown it would be treated as if it were zero. Relatively few 401(k) plans allow after tax contributions and its likely that you would know if you had made them.
I’m referring to after tax contributions to a traditional 401(k) plan not designated Roth contributions. After tax contributions are allowed and would mean the earnings on those contributions would be taxable as ordinary income when withdrawn but the original contribution would not be.
edited 16 hours ago
JoeTaxpayer♦
148k23238478
answered 20 hours ago
T. M.T. M.
1,188211
edited 16 hours ago
JoeTaxpayer♦
148k23238478
edited 16 hours ago
JoeTaxpayer♦
148k23238478
edited 16 hours ago
JoeTaxpayer♦
148k23238478
148k23238478
answered 20 hours ago
T. M.T. M.
1,188211
answered 20 hours ago
T. M.T. M.
1,188211
answered 20 hours ago
T. M.T. M.
1,188211
1,188211
1
After tax contributions can be rolled into a Roth IRA when you switch jobs or retire.
– Nathan L
13 hours ago
@NathanL Yes, or when withdrawn as an in-service withdrawal if the plan allows those as well, but that wasn't what the question was about so I didn't mention that. Also certain merger/buyout situations can trigger the ability to rollover 401(k) balances.
– T. M.
9 hours ago
add a comment |
1
After tax contributions can be rolled into a Roth IRA when you switch jobs or retire.
– Nathan L
13 hours ago
@NathanL Yes, or when withdrawn as an in-service withdrawal if the plan allows those as well, but that wasn't what the question was about so I didn't mention that. Also certain merger/buyout situations can trigger the ability to rollover 401(k) balances.
– T. M.
9 hours ago
1
1
After tax contributions can be rolled into a Roth IRA when you switch jobs or retire.
– Nathan L
13 hours ago
After tax contributions can be rolled into a Roth IRA when you switch jobs or retire.
– Nathan L
13 hours ago
@NathanL Yes, or when withdrawn as an in-service withdrawal if the plan allows those as well, but that wasn't what the question was about so I didn't mention that. Also certain merger/buyout situations can trigger the ability to rollover 401(k) balances.
– T. M.
9 hours ago
@NathanL Yes, or when withdrawn as an in-service withdrawal if the plan allows those as well, but that wasn't what the question was about so I didn't mention that. Also certain merger/buyout situations can trigger the ability to rollover 401(k) balances.
– T. M.
9 hours ago
add a comment |
Cost basis doesn't matter because all distributions are:
- taxable in traditional retirement accounts.
- non-taxable in roth accounts.
Contributions are relevant to roth accounts because you can take those back within certain parameters without any penalty.
answered 23 hours ago
quidquid
39.5k876129
3
That’s not true if there were after tax contributions.
– T. M.
20 hours ago
3
@T.M. I don't understand your comment here. After-tax contributions to a 401(k) are usually to a Roth 401(k) are you referring to something else?
– Nathan L
13 hours ago
2
@NathanL: Yes, there's a third type of 401(k) which is an after-tax (contributions beyond the now-19k annual limit).
– Ben Voigt
13 hours ago
@BenVoigt wouldn't most people just roll those to a Roth IRA when they retire or switch jobs?
– Nathan L
13 hours ago
1
@NathanL: Mostly correct. The cost basis matters at the moment of rollover because it determines how much of the after-tax account rolls to traditional IRA and how much to Roth IRA.
– Ben Voigt
12 hours ago
add a comment |
Cost basis doesn't matter because all distributions are:
- taxable in traditional retirement accounts.
- non-taxable in roth accounts.
Contributions are relevant to roth accounts because you can take those back within certain parameters without any penalty.
answered 23 hours ago
quidquid
39.5k876129
3
That’s not true if there were after tax contributions.
– T. M.
20 hours ago
3
@T.M. I don't understand your comment here. After-tax contributions to a 401(k) are usually to a Roth 401(k) are you referring to something else?
– Nathan L
13 hours ago
2
@NathanL: Yes, there's a third type of 401(k) which is an after-tax (contributions beyond the now-19k annual limit).
– Ben Voigt
13 hours ago
@BenVoigt wouldn't most people just roll those to a Roth IRA when they retire or switch jobs?
– Nathan L
13 hours ago
1
@NathanL: Mostly correct. The cost basis matters at the moment of rollover because it determines how much of the after-tax account rolls to traditional IRA and how much to Roth IRA.
– Ben Voigt
12 hours ago
add a comment |
Cost basis doesn't matter because all distributions are:
- taxable in traditional retirement accounts.
- non-taxable in roth accounts.
Contributions are relevant to roth accounts because you can take those back within certain parameters without any penalty.
answered 23 hours ago
quidquid
39.5k876129
Cost basis doesn't matter because all distributions are:
- taxable in traditional retirement accounts.
- non-taxable in roth accounts.
Contributions are relevant to roth accounts because you can take those back within certain parameters without any penalty.
answered 23 hours ago
quidquid
39.5k876129
answered 23 hours ago
quidquid
39.5k876129
answered 23 hours ago
quidquid
39.5k876129
answered 23 hours ago
quidquid
39.5k876129
39.5k876129
3
That’s not true if there were after tax contributions.
– T. M.
20 hours ago
3
@T.M. I don't understand your comment here. After-tax contributions to a 401(k) are usually to a Roth 401(k) are you referring to something else?
– Nathan L
13 hours ago
2
@NathanL: Yes, there's a third type of 401(k) which is an after-tax (contributions beyond the now-19k annual limit).
– Ben Voigt
13 hours ago
@BenVoigt wouldn't most people just roll those to a Roth IRA when they retire or switch jobs?
– Nathan L
13 hours ago
1
@NathanL: Mostly correct. The cost basis matters at the moment of rollover because it determines how much of the after-tax account rolls to traditional IRA and how much to Roth IRA.
– Ben Voigt
12 hours ago
add a comment |
3
That’s not true if there were after tax contributions.
– T. M.
20 hours ago
3
@T.M. I don't understand your comment here. After-tax contributions to a 401(k) are usually to a Roth 401(k) are you referring to something else?
– Nathan L
13 hours ago
2
@NathanL: Yes, there's a third type of 401(k) which is an after-tax (contributions beyond the now-19k annual limit).
– Ben Voigt
13 hours ago
@BenVoigt wouldn't most people just roll those to a Roth IRA when they retire or switch jobs?
– Nathan L
13 hours ago
1
@NathanL: Mostly correct. The cost basis matters at the moment of rollover because it determines how much of the after-tax account rolls to traditional IRA and how much to Roth IRA.
– Ben Voigt
12 hours ago
3
3
That’s not true if there were after tax contributions.
– T. M.
20 hours ago
That’s not true if there were after tax contributions.
– T. M.
20 hours ago
3
3
@T.M. I don't understand your comment here. After-tax contributions to a 401(k) are usually to a Roth 401(k) are you referring to something else?
– Nathan L
13 hours ago
@T.M. I don't understand your comment here. After-tax contributions to a 401(k) are usually to a Roth 401(k) are you referring to something else?
– Nathan L
13 hours ago
2
2
@NathanL: Yes, there's a third type of 401(k) which is an after-tax (contributions beyond the now-19k annual limit).
– Ben Voigt
13 hours ago
@NathanL: Yes, there's a third type of 401(k) which is an after-tax (contributions beyond the now-19k annual limit).
– Ben Voigt
13 hours ago
@BenVoigt wouldn't most people just roll those to a Roth IRA when they retire or switch jobs?
– Nathan L
13 hours ago
@BenVoigt wouldn't most people just roll those to a Roth IRA when they retire or switch jobs?
– Nathan L
13 hours ago
1
1
@NathanL: Mostly correct. The cost basis matters at the moment of rollover because it determines how much of the after-tax account rolls to traditional IRA and how much to Roth IRA.
– Ben Voigt
12 hours ago
@NathanL: Mostly correct. The cost basis matters at the moment of rollover because it determines how much of the after-tax account rolls to traditional IRA and how much to Roth IRA.
– Ben Voigt
12 hours ago
add a comment |
A 401(k) plan is a qualified retirement plan. This means that as long as you follow all the rules and only roll funds to other qualified retirement plans, you don't need to worry about the cost basis of any purchases, because you won't pay any taxes on any of the investments (capital gains, etc.) while your money remains in those qualified plans.
As quid mentioned earlier, you will only pay taxes (depending on the type of plan) when the funds are withdrawn, not when individual investments are bought or sold. (Nor when dividends are paid.)
The special rules that you want to pay attention to with these qualified plans are related to contribution limits, rollovers, and especially withdrawals. Those rules are amply covered in other answers here, but you should become familiar with the advantages and disadvantages of each type of plan.
answered 13 hours ago
Nathan LNathan L
30.3k1675132
"As quid mentioned earlier, you will only pay taxes (depending on the type of plan) when the funds are withdrawn" - and do you need the cost basis at that time, or is it not used in the calculation?
– Don Branson
7 hours ago
@DonBranson cost basis is the wrong term here, but generally no. If it's in a traditional account (pre-tax contributions) then you will pay tax when you withdraw because that's money you were never taxed on. In Roth accounts, you paid in post-tax, and the original contributions are available in a variety of circumstances, and the gains are available tax free at retirement time.
– Nathan L
7 hours ago
Thanks. :) That helps clarify.
– Don Branson
7 hours ago
add a comment |
A 401(k) plan is a qualified retirement plan. This means that as long as you follow all the rules and only roll funds to other qualified retirement plans, you don't need to worry about the cost basis of any purchases, because you won't pay any taxes on any of the investments (capital gains, etc.) while your money remains in those qualified plans.
As quid mentioned earlier, you will only pay taxes (depending on the type of plan) when the funds are withdrawn, not when individual investments are bought or sold. (Nor when dividends are paid.)
The special rules that you want to pay attention to with these qualified plans are related to contribution limits, rollovers, and especially withdrawals. Those rules are amply covered in other answers here, but you should become familiar with the advantages and disadvantages of each type of plan.
answered 13 hours ago
Nathan LNathan L
30.3k1675132
"As quid mentioned earlier, you will only pay taxes (depending on the type of plan) when the funds are withdrawn" - and do you need the cost basis at that time, or is it not used in the calculation?
– Don Branson
7 hours ago
@DonBranson cost basis is the wrong term here, but generally no. If it's in a traditional account (pre-tax contributions) then you will pay tax when you withdraw because that's money you were never taxed on. In Roth accounts, you paid in post-tax, and the original contributions are available in a variety of circumstances, and the gains are available tax free at retirement time.
– Nathan L
7 hours ago
Thanks. :) That helps clarify.
– Don Branson
7 hours ago
add a comment |
A 401(k) plan is a qualified retirement plan. This means that as long as you follow all the rules and only roll funds to other qualified retirement plans, you don't need to worry about the cost basis of any purchases, because you won't pay any taxes on any of the investments (capital gains, etc.) while your money remains in those qualified plans.
As quid mentioned earlier, you will only pay taxes (depending on the type of plan) when the funds are withdrawn, not when individual investments are bought or sold. (Nor when dividends are paid.)
The special rules that you want to pay attention to with these qualified plans are related to contribution limits, rollovers, and especially withdrawals. Those rules are amply covered in other answers here, but you should become familiar with the advantages and disadvantages of each type of plan.
answered 13 hours ago
Nathan LNathan L
30.3k1675132
A 401(k) plan is a qualified retirement plan. This means that as long as you follow all the rules and only roll funds to other qualified retirement plans, you don't need to worry about the cost basis of any purchases, because you won't pay any taxes on any of the investments (capital gains, etc.) while your money remains in those qualified plans.
As quid mentioned earlier, you will only pay taxes (depending on the type of plan) when the funds are withdrawn, not when individual investments are bought or sold. (Nor when dividends are paid.)
The special rules that you want to pay attention to with these qualified plans are related to contribution limits, rollovers, and especially withdrawals. Those rules are amply covered in other answers here, but you should become familiar with the advantages and disadvantages of each type of plan.
answered 13 hours ago
Nathan LNathan L
30.3k1675132
answered 13 hours ago
Nathan LNathan L
30.3k1675132
answered 13 hours ago
Nathan LNathan L
30.3k1675132
answered 13 hours ago
Nathan LNathan L
30.3k1675132
30.3k1675132
"As quid mentioned earlier, you will only pay taxes (depending on the type of plan) when the funds are withdrawn" - and do you need the cost basis at that time, or is it not used in the calculation?
– Don Branson
7 hours ago
@DonBranson cost basis is the wrong term here, but generally no. If it's in a traditional account (pre-tax contributions) then you will pay tax when you withdraw because that's money you were never taxed on. In Roth accounts, you paid in post-tax, and the original contributions are available in a variety of circumstances, and the gains are available tax free at retirement time.
– Nathan L
7 hours ago
Thanks. :) That helps clarify.
– Don Branson
7 hours ago
add a comment |
"As quid mentioned earlier, you will only pay taxes (depending on the type of plan) when the funds are withdrawn" - and do you need the cost basis at that time, or is it not used in the calculation?
– Don Branson
7 hours ago
@DonBranson cost basis is the wrong term here, but generally no. If it's in a traditional account (pre-tax contributions) then you will pay tax when you withdraw because that's money you were never taxed on. In Roth accounts, you paid in post-tax, and the original contributions are available in a variety of circumstances, and the gains are available tax free at retirement time.
– Nathan L
7 hours ago
Thanks. :) That helps clarify.
– Don Branson
7 hours ago
"As quid mentioned earlier, you will only pay taxes (depending on the type of plan) when the funds are withdrawn" - and do you need the cost basis at that time, or is it not used in the calculation?
– Don Branson
7 hours ago
"As quid mentioned earlier, you will only pay taxes (depending on the type of plan) when the funds are withdrawn" - and do you need the cost basis at that time, or is it not used in the calculation?
– Don Branson
7 hours ago
@DonBranson cost basis is the wrong term here, but generally no. If it's in a traditional account (pre-tax contributions) then you will pay tax when you withdraw because that's money you were never taxed on. In Roth accounts, you paid in post-tax, and the original contributions are available in a variety of circumstances, and the gains are available tax free at retirement time.
– Nathan L
7 hours ago
@DonBranson cost basis is the wrong term here, but generally no. If it's in a traditional account (pre-tax contributions) then you will pay tax when you withdraw because that's money you were never taxed on. In Roth accounts, you paid in post-tax, and the original contributions are available in a variety of circumstances, and the gains are available tax free at retirement time.
– Nathan L
7 hours ago
Thanks. :) That helps clarify.
– Don Branson
7 hours ago
Thanks. :) That helps clarify.
– Don Branson
7 hours ago
add a comment |
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