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Saving personal and IRA (and Tax) Records

This time of the year we get a lot of questions about what personal IRA and Tax Records should be saved. Many of us just got through the annual, harrowing experience of filing our personal, and in some cases business, tax returns.

Now, what do we do with all the paperwork? Because in spite of the ever-increasing “Electronic Age,” we have NOT eliminated all paperwork, AND, in addition, we now have electronic records to think about.

Many taxpayers have a real misconception or misunderstanding of what needs to be saved.

We like to describe and explain IRA (and Tax) documentation in terms of insurance, which we are all familiar with. Insurance is something we all cringe when paying premiums, but are really happy when we have a claim to submit.

Well, IRA and Tax documentation and records is a lot like insurance. Documentation is the insurance you have to protect yourself in an IRS audit. How much insurance do you want/need to be covered for IRS inquiry? Again, you have choices. You can save nothing and hope for the best. NOT RECOMMENDED.

You can have the best “coverage” by saving EVERYTHING FOREVER! Not real convenient but still the best policy and the one we recommend.

Or you can determine some method in between.

First, with the economy and convenience of electronic archiving, we recommend that ALL ELECTRONIC RECORDS AND DOCUMENTATION SHOULD BE SAVED FOREVER! There just is no good reason not to. But before you electronically archive all records, a very convenient practice, be sure to check with your legal counsel. Not all situations, legal, tax or IRA, will allow electronic documents for proof.

The hassle comes with the paper records and reports. You’d think with the potential importance of this topic, there would be clear IRS Guidance. Reasonable to assume, but that really is NOT the case.

The only inclination we have of what the IRS is thinking is found in IRS Publication 552, Recordkeeping for Individuals. In this publication, the IRA Owner/Taxpayer is told to save all IRA documentation until the IRA is closed. This presumably would include through the final distribution to beneficiaries. So here, it would seem the IRS agrees with our best recommendation…Save everything FOREVER. This IRS publication also reviews a number of personal, non-IRA, tax records procedures. It is a good publication to review.

As you choose your procedure for archiving records, IRA or otherwise, you should also remain cognizant that it appears the IRS can require any taxpayer to prove any and all IRA and Tax transactions, as far back as they care to go, with virtually no valid reason to do so. While three years after filing/amending reports and returns is the norm for IRS Audits, and it would be unusual, it is not impossible for the IRS to request farther back. And remember, it is three full years after the filing or amending of the report/return, whichever is later.

Then, too, there can be state tax and legal issues. Many states have a period of time after an account is closed that remains open for litigation purposes.  States can also have tax rules.

Be sure to check with your legal counsel before destroying any records.

Terry White

About Terry White

I started my business career after getting my degree in Accounting from the University of New Mexico in 1983. My first job was as a controller for a local title company, and in 1987 I started First Financial Escrow, Inc. Over the years I played a part in several startup companies including First Financial Equities, Inc., First Financial Trust, Inc., First Financial Marketing, Inc. and Asset Ventures, Inc. In 1997 First Financial Escrow, Inc. was able to purchase the escrow accounts from Sunwest Bank and changed its name to Sunwest Escrow. As the market changes, Sunwest has grown and changed along with it. Besides my wife, Sheila, we have three boys, two daughters-in-law, one grandson, another grandson on the way and a future daughter-in-law. Sunwest is my passion, and I enjoy coming to work every day to see what will happen next. I enjoy fly fishing, spending time in Colorado, biking and watching my boys play soccer.