I get asked a lot of retirement plan questions, and this was a doozy. Who's to blame when you can't find the records of contributions and earnings in a Roth and all you want to do is pull out what you contributed? A pal of mine called with this the other day. Here's the conversation for your benefit:
Pal: Hey, so we're thinking about buying [X] for retirement income and we want to use part of our Roth IRA money, which came from about 4 Roth 401ks, to do it. We're running into trouble.
Me: Sounds reasonable. What's the issue? You know I'm not an accountant so don't ask any tax questions!
Pal: Some of the Roth 401k accounts making up the Roth IRA are pretty old -- we rolled them to the IRA a few years back. [Financial Institution that holds the Roth IRA] said they weren't sent the breakdown of contributions versus earnings. I called the 401k plan recordkeepers that had the money before we consolidated the accounts into the Roth IRA. So far, at least two of the recordkeepers don't have the record of the contributions and earnings any more. One is trying to track them down for me. The reason all this is important is I only want to take out the contributions. Otherwise, if I take out the earnings, I'll end up paying penalties for being younger than 59 and a half.
Me: Yikes. The old 401k recordkeepers can't round them up?
Pal: One said they purge the records after 4 years. The 401k account has been closed for 7 years. Any thoughts on how to figure this out?
Me: The old school way to figure out what the contributions were versus the earnings is to go back to your W-2s or tax returns for those years and see what was reported as a contribution. That will at least give you a starting point. Then check how much rolled to the IRA. Subtract the contributions and you'll know the earnings.
Pal: So, really, we probably should have held on to statements somewhere along the way?
It turns out that the practice of purging old records like this isn't uncommon and the amount of time before that happens varies from vendor to vendor! So, it's a good idea to advise employees to hold on to the last statement they got before they roll over a 401k.