Accounting for IRA withdrawal in Quicken 2014

Back again. And I realize that you've more or less had the light dawn. But Quicken really _does_ handle this correctly. With one snivvy that might not be clear. As it happens my wife has an inherited IRA with an RMD that we've been getting for the past few years. So, once a month, Ye Financial Institution cashes out a certain number of shares of a mutual fund, in the value of the monthly RMD.

So far, so good. That's what they're supposed to do. Here's where it gets tricky.

In their statements, and what gets downloaded into Quicken, they deduct the Federal Taxes at a rate that we specified. (I'll come back to that after we get through the tricky part.)

Next, in their statements, they then transfer what remains into a taxable account with that same financial institution. For tax purposes, it would be the same as if they cut me or my wife a check and sent it to us.

So, just playing math, Cash_Received = (RMD - TAX_WITHELD).

Now, how does Quicken handle this?

First, Quicken knows that distributions from IRAs are special. In Quicken, go to Tools->Account List, then click the Edit button for the IRA account. You'll see little check boxes about tax deferred and such. At the bottom of the Account Details screen you'll see a button for Tax Schedules. Click on that.

You'll see, or you should see, that Transfers Out are associated with

1099-R Total IRA taxable distrib. As it should be. Sort of.

So, in Quicken, when you transfer money out of the account, in the Tax Planner this shows up as income. On my 2015 Quicken, this is under Planning, Tax Center button, then Show Tax Planner. In the Tax Planner the IRA income shows up in Other Income as Taxable IRA/Pension Distributions. Yes, you _will_ be getting a 1099-R this coming year from your financial institution. And the money ends up in Line 15B of the full 1040 form, or at least it did last year.

Now we get to the tricky part where Quicken misses the boat. Suppose that your total RMD in 2014 is $5000 and the financial institution nabbed $1000 of that and sent it to the Feds, then sent you a check for $4000. Quicken sees _only_ that you got a transfer out of the account in the amount of $4000. And, for tax purposes, it rather ignores the fact that you paid $1000 in federal tax withholding, probably because it has the account type marked as a tax-free type of account. Oops. So it shows (or at least, in the versions of Quicken before 2015 it shows) your taxable income from the distribution as $4000 and it ignores the fact that you paid $1000 in taxes to the Fed. Oops again.

How to fix: Quicken kung-fu.

1. Download ye transactions from the financial guys. You'll typically have three of them: a) Them selling off some security or other for the appropriate RMD amount. (The 00). b) Them taking out the taxes. (Tax:Fed). (00 in Federal Tax Withholding.) c) A transfer to a taxable account. (the 00 you get.)
2. Note that in your taxable account you have a deposit of 00, following my example here.
3. Kung-Fu step #1: Write down the amount in 1b, then delete that transaction. (The 00 goes away).
4. Kung-Fu step #2: Change the transfer out of the account in 1c to the full RMD value. (00)
5. Kung-Fu step #3: Change the transfer into the taxable account into a split transaction. a) First split item: 00 from the IRA. b) Second split item: -00 as a withholding to the Feds. (Tax:Fed). You remembered to write down the amount before you deleted it, right? :)

Results of the Kung-fu:

1. Quicken sees a 00 transfer out of the account. That's the correct, taxable amount as far as it's concerned and the money goes into the correct places in the tax planner, including as a full 00 income IRA distribution. Yea!
2. Quicken sees a 00 payment to the Feds. This also shows up in the tax planner because it happened in a taxable account, and it shows up in the right place, too, as Tax Withholding. Assuming that you got the correct category in the split.
3. You end up with 00 in your taxable account, which, frankly, is the amount of the check they sent you.
4. If you run a Reports->Tax->Tax Schedule or Tax Summary, the numbers come out correctly.

So, yeah, by default Quicken doesn't get it Quite Right, but a little Kung Fu fixes that.

Hope that helps.

KBeck