The focus this week is on investing jargon that you should pay attention to in order to make good decisions for your retirement, and today I’m talking about cost basis.

Investopedia defines cost basis as the original value of an asset for tax purposes, usually the purchase price, adjusted for stock splits, dividends and return of capital distributions.

Cost basis is important to understand because you use it to calculate your gain on an investment when you’ve sold it or are planning to sell it, so you can figure out what the tax bite is going to be.

Cost basis is especially important when you own an investment outside of an IRA in a taxable account, like an individual account, a joint account, or a trust. Cost basis in these types of accounts is necessary to calculate what the gain or loss is on the investment after it’s sold, which in turn determines what your taxes owed will be.

I can’t tell you how many times we’ve had to help clients guesstimate or find missing cost basis when they decide to sell an investment, so here’s my key takeaway for you from today’s tip:

Always, always, always keep trade confirmations from your financial institution. Confirmations will tell you the day the investment was purchased, the purchase price, and the total cost basis - all critical pieces that you’ll need if you ever sell the investment in a taxable account.

And if you think the financial institution will keep this information on your behalf, think again. If you bought something 30 years ago and don’t know your original cost basis, it might be impossible to find it, especially if you transferred your account to another financial institution.

Reporting requirements have improved significantly in recent years, but tracking cost basis is your responsibility, and IRS expects you to keep and maintain records that identify the cost basis of your investments.

That’s it for today. Tomorrow, we’re going to continue with money market funds.

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