Accounting for IRA withdrawal in Quicken 2014

"jo" wrote

The only part missing is how to get the gross amount to show up into an income category- Ira distribution, miscellaneous, ANYTHING!

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Are you sure you need the gross amount to show up in a "category"? Or do you just need it to show up in a Tax Line Item?

You can assign Tax Line Items to "transfers" (FROM or TO any account). See the "Tax Schedule" button on the General tab of the Edit Account Details dialog for the account.

You can also assign a tax line item to a specific transaction: right-click the transaction and select the "Tax Line Item Assignments" choice (also available for specific line items in a split transaction).

I would like the gross amount to show up in an income category because it * is* income to me this year and to have it omitted from my P/L report is mis leading without it. I do have the Tax Line Assignments set appropriately and the report is correct. I seem to need just one extra trick to get this income stream reflected where I want it.

"jo" wrote

"I would like the gross amount to show up in an income category because it

*is* income to me this year and to have it omitted from my P/L report is misleading without it".

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Wasn't it income back when you earned it ... before you contributed the income to your IRA? If you treated it as income back then, wouldn't you be double-counting it if you called it income a second time, now?

In any event, every category in Quicken has either an income or expense "characteristic", even transfer categories.

The Income and Expense by Category report defaults to displaying all but "Internal" transfers - so you should see your IRA withdrawal in that report without any need for customization.

The Profit and Loss Statement, on the other hand, defaults to excluding all transfers. If you Customize the P&L report and tell it to include all transfers, you should see your IRA withdrawal transaction(s) reflected in the report. You may need to tweak the Category selections to exclude the "withdrawal" from the IRA account ... leaving only the "deposit" (in the category, "FROM Ira Account") into the checking? account.

OK. Calm down.

It's income, but, especially after the broker has taken taxes out, not all of it may be _taxable_ income. Especially if you've done non-deductable contributions over time.

You probably know all this, but let's hit it one piece at a time.

Let's suppose that you have performed nothing but deductable contributions to your IRA over time. In addition, your IRA has been earning money. In that case, the sum total cashed out (before taxes) is income. Assuming that you're tracking both the IRA and your checking account in Quicken, you hopefully have your IRA _marked_ as an IRA in Quicken. (Look under account details on the IRA. Confirm that Quicken thinks that the tax schedule for transfers out of the IRA are listed as "1099-R: Total IRA taxable distrib.")

Next: In your checking account, do a deposit for the amount that the broker sent your. However, in order to keep Quicken sane, do a split on this transaction. In the split, first line, put down the gross amount that was created in your IRA account before taxes. On the second line, make the category for the negative amount shown as federal tax witholding, just like your paycheck. (On mine, it's Tax:Fed).

Believe it or not, in the Quicken tax planner, the transfer from the IRA to your checking account will show up as IRA income, and that income will be the total amount, before taxes. The witholding will show up in the correct place as money paid to the feds this year.

Where this nifty trick falls on its face is when you've made non-deductable contributions to the IRA in past years. If you have, then the non-deductable contributions have been taxed in the year that you made them and the _proportion_ _of_ _the_ _distribution_ that is attributable to those non-deductable contributions doesn't get taxed when you take out the money. Example: Suppose you put in $5,000 of deductable contributions; $2,000 of non-deductable contributions (total of $7,000). Then, a number of years later after your investments have grown, your IRA is now worth $10,000. (Growth of another $3,000). You now take out $2,500 as a distribution. Of that $2,500, $2,500*(5000+3000)/10000 = $2,000 is taxable income. $2,500*(2000/10000)=$500 is not taxable income.

The feds have a nifty IRA distribution form that takes you through all the math, handy especially when you have multiple IRAs all over and distributions from different IRAs all over.

As far as I know, Quicken doesn't know how to handle the non taxable portions of IRAs, so it counts it all as income.

KBeck.

d cash in the Ira to cover it and received a check from my broker for the n et amount. From reading various solutions online, I understand that the un derlying approach is a split transaction in the receiving account but didn' t grasp everything I read.

Ira account to a pseudo account I use for holding undeposited checks. I' ve split the receiving transaction so that the taxes show up in the proper [asset] categories and the sum of the taxes offsets the transferred amount to leave the exact amount of the check I received in this holding account. The only part missing is how to get the gross amount to show up into an inc ome category- Ira distribution, miscellaneous, ANYTHING!

d use some help. It seems like I need to be able to assign a category to that transfered amount, but obviously I can't do that directly. RC?? Jo hn?? Anyone?

Thanks for trying to explain how to do this. Unfortunately it still isn't w orking, but I also varied the procedure a bit and that may be the cause. H ere's the current situation.

1) I have what you described: a simple IRA with all of it tax deductible co ntributions earning income over the years. The IRA account is configured a s you indicated. 2) My first transaction was not a Deposit,but a Transfer of the gross amoun t from the Ira account to my checking. That seemed like the logical way to mimic the actual event. However I cannot then split the Transfer; Quicken blocks me. 3) The closest I could come to getting anything correct was to Transfer eac h component of the total to my checking: the actual amount received, and th e federal and state tax withheld. That accomplished reducing my Ira balan ce and assigning the withheld taxes to the correct categories, but I cannot find any place, either in the Tax Planner, or in my P/L that the gross amo unt shows up as income. I really want it to appear in that latter, along w ith all other income. Having it just in the TAx Planner wouldn't suffice, e ven if it did work.

What am I missing?

Set up the split in the IRA before transfer and, yes, you will have to start with the gross amount and deduct the other items to get to the net because they are all being transferred.

What you are missing is the fact that only the gain on the sale of your funds is current year income. The original value of the funds sold are not current year income. It should have been considered and shown as part of your gross salary income in the year that you transfer the funds into the IRA account. In other words, the portion of your salary transferred into your IRA to buy funds was a payroll deduction, transfer to your IRA account, the same as taxes or other payroll deductions, i.e. insurance. The gain shows in your current year reports as 'RlzdGain'. If the original cost was included in current year income, you would be 'double counting'. Once when you earned the money that you transferred to the IRA account to buy the funds and again when you withdraw the funds for the IRA account. Hope this solves your problem. In summary, the original cost of the funds was income in the year earned and transferred. The gain on the sale of the funds is income in the year that you withdrew the funds.

Now, hopefully I don't have you completely confused.

I am completely confused :( I can see this is likely going to be a tax nig htmare. I thought this was simple because I fell into your first scenario: nothing but tax deductible contributions, which meant the gross withdrawal

*was* income this year.

Whatever funds went into this Ira were made decades ago because I had to re tire on disability back in the 1980s. I have absolutely no records of how anything was accounted for back then but vaguely remember that the company decided at year end how much they would put in your IRA account, based on y our salary and how well they had done that year (could be a false memory); I don't remember what my W2s looked like at all but I wasn't contributing m onthly, assuming I was contributing at all. I don't have my tax returns f rom back then either, of course, to see how I was reporting things either. If I was deducting the company contribution (and they were reporting it on a W2), are we back to the simple situation?

The company was bought out by another, and has recently changed hands again . I do know some of the people who worked with me back then may be able to get a little clarification on how things worked, but doubt that it will be enough. When I left the company, I rolled the account into another Ira at F idelity and there were a few years where I was doing a little consulting an d contributed a small amount to the account. I did deduct my contribution when I filed tax returns for those years.

Any gains tracked only go back to about 8 years ago, after I stopped contri buting and just let my financial advisor adjust the mix of investments. The re is a cost basis attached to the account,as of the date she inherited it from Fidelity, but I doubt that's helpful in determining what proportion of my current year's withdrawal is taxable to me. This is a mess and obvious ly not a Quicken problem.

Ken,

I think we have made my situation overcomplicated, and my lack of memory or records has made it worse. The below came from website describing taxati on of withdrawals:

Case 1 ) "No nondeductible contributions: Distributions out of the account after age 59½ are taxed as ordinary income. You don't have to calculate i nvestment gains."

I doubt that I would have tossed all records if I had any inkling that I wo uld have to do some special calculations when I finally made a withdrawal; I tend to keep everything. I suspect that all the company contributions were deductible in the year made, and were reported as such in my tax retur ns. Certainly all my contributions after leaving the company were in this category. So it isn't double taxation, and we can go back to trying to figu re out how to enter this in Quicken if you agree :) (I'm still going to a sk my old associates for details)

jo

Jo,

Relax, relax, relax, breathe, breathe, breathe. Not necessary to worry, because as described below, you really don't have a problem. Your just confused about financial income vs. taxable income.

Based on all of your posts, I'm going to make a few assumptions:

1. Your prior years' tax returns were properly prepared either by you or a competent tax accountant.
2. You do not have the IRS chasing you.
3. You have little accounting or tax knowledge.
4. You are confusing income for financial accounting (Income and Expense Report in Quicken) with taxable income. These are two completely different animals.

Now, based on the above, this year you will be taxed on 100% of your IRA distribution. A regular IRA, not a Roth IRA, always have 100% of the distribution taxed in the year of withdrawal. You don't need to worry about any cost basis versus investment earnings for tax purposes. The company managing your IRA will provide all of the necessary tax documents by the end of January. Your 2014 tax preparation should not be a problem.

The cost basis is only necessary when selling stock from a brokerage account. It may also be necessary for Roth IRA's, but since I don't have one, I'm not sure. To spare anymore confusion, I won't go into an explanation regarding brokerage or Roth IRA accounts since it isn't part of you current concern.

From a financial accounting perspective, the only income this year is the interest or dividends earned this year and any increase in market value (RlzdGain) on the funds sold to generate the cash distributed.. That's what will show on a Quicken Income and Expense Report. Remember, the amounts transferred into you IRA and the interest and dividends from prior years was reported as income in the year earned.

From a taxable income perspective, you pay tax on 100% of the distribution because neither the amount you contributed to the IRA nor the interest or dividends earned were ever taxed. Since 100% is taxed there is no need to know how much is your original contribution or how much you earned on it or how much the market value increased. 100% is 100%.

If you have properly entered, into Quicken your contributions, rollovers, mutual fund purchases, interest and dividends earned and sales and distributions, you Quicken reports will be properly stated. If not, I can't help you, nor do I think anyone else can, since you don't have the records.

A point of curiosity. How many years of data do you have in your Quicken file?

I don't know if I can be of any further help. While I'm a retired Corporate Accountant, I an not, nor have I ever been a Tax Accountant. I know enough to accurately prepare my personal tax returns. I purposely stay away from doing taxes for others because I don't enjoy it nor do I want the responsibility. I do believe that I understand Quicken and I am comfortable using the 'interview process' in TurboTax. Maybe R.C. White will jump into this discussion. He's a retired Public Accountant and has more experience in this area then I do.

Jo,

Sorry I wasn't on to reply over the last few days; busy with work.

Hokay, it's like this. The money in your IRA is in the following buckets, with the IRA's take on this:

1. Bucket #1: Money that you put into the IRA in a particular year and that you _deducted_ on your federal return the year you did that. That's a "deductable" IRA contribution. a. Did you pay tax on that money the year you put it into the IRA? Answer: No. That's the definition of a deductible contribution, you deducted the income from your tax return _in_ _that_ _year_. An example: if you put 00 into your IRA in 1993 and you deducted that from your taxes in that year, that meant you took your gross income for that year, knocked off 00 for the deductible IRA contribution, and the Feds didn't tax the contribution. b. When you take that money _out_, later, the Feds want their slice of it, using the tax rates present during the year you took it out. (Note: _not_ the tax rates when you put it _in_. That's usually a Good Thing, since one typically has less income and lower tax rates after one retires as compared to before.)

1. Bucket #2: Money that you put into the IRA in a particular year and that you did _not_ deduct from your income in the year that you did that. This is the definition of a "non-deductible contribution". Yes, one can do that; heck, I do that. Sometimes it's been when the income limits in a particular year are such that one _cannot_ make a deductible contribution (one makes over "yea", whatever "yea" is: Then the IRS says, "no cookie (deductible contribution) for you!". a. Did you pay tax on that money in the year you put it into the IRA? Answer: Yes. You couldn't deduct the IRA contribution from your gross income. An example: You put in 00, the IRS said you couldn't deduct it, so you didn't. b. When you take that money out later, the IRS says, "You already paid taxes on that money. We're not taking a second bite of the apple, you don't have to pay taxes on it again! So don't."

2. Bucket #3: You've got money in your IRA and it's been in there. Value of the account has gone up over time: Dividends, reinvested Capital Gains, and (if you're in mutual funds/stocks/bonds etc.) when you sell those financial instruments, you get more than you paid for them. (Yeah, capital gains, no kidding.) A simple way to think of it: Whatever's in that account that's not from Bucket #1 or Bucket #2 is Bucket #3. And, yes, it is possible that bucket #3 might be _negative_, one can have capital losses, too. a) Did you pay any taxes on that increase in value? Answer: No. This is one of the major reasons that people like to invest in IRAs, even if the contribution is non-deductible: They grow tax-free. b) When you take that money out later, the IRS says, "You haven't paid taxes on that stuff, reinvested dividends/capital gains or just straight capital gains/losses. You sure as heck are going to be paying taxes on it now!"

Just to be clear about Bucket #2: Suppose that the limit of a deductible contribution in a given year is some amount, and you put in more than that. The amount below the limit is deductible and is going to be taxed when you take it out; the amount above that limit is non-deductible and you won't be paying taxes on it when you take it out. Example: Suppose that in 1995 the limit is $5000. (I don't remember what it was, one can look it up.) You put in $7000: Then, that year, you get a $5000 deduction on your taxes and 1) a $5000 deductible contribution and 2) a $2000 non-deductible contribution into your IRA.

At the end of any given year before you start taking money out, the amounts in Buckets #1 and #2 are fixed and are a sum of the amounts you put in Buckets #1 and #2 in previous years. The amount in Bucket #3 depends upon how well your investments are doing. At the end of any given year, the sum of Buckets 1, 2, and 3 _is_ the year-end value of your IRA. Period.

Now comes the time when you take money out. Bucket #1 is taxable; Bucket #3 is taxable; and Bucket #2 is _not_ taxable. Like I said above, the IRS/Congress doesn't want to double dip.

Reporting. If you have an IRA and you've made non-Deductible contributions, ever, you're _supposed_ to file Form 8606, Nondedutible IRAs (Contributions, Distributions, and Basis). Chase on over to the IRS web site and download a copy. Now. I'll wait.

This form does two things:

1. It works out for you what's in Buckets 1, 2, and 3. It's a running total thing: On line 2, it wants the amounts from previous years, fun.
2. If you had a distribution, based upon what was in Buckets 1, 2, and 3 at the beginning of the year, it figures out how much of that was taxable (the proportion that was in Buckets 1 and 3) and how much was not taxable (the proportion that was in Bucket 2). It then has you stick the appropriate values into the right places in the 1040 forms.

If you've never had a Bucket 2, non-deductible contribution then it's simple: You don't have to file 8606 and do the math, everything you got out of your IRA is straight income since it was never taxed before. Full stop, go on with your life. If you have had a Bucket #2 situation, then you slap your forehead (like I did once), go back through your records, find copies of 8606 from the IRS web site going back 'way too many years, fill out all those forms starting in the year you made your first non-deductible contribution, and fill out the forms right on through to the present year. The last one (using the data from all the previous 8606's) will have the appropriate basis (what the IRS calls it) and the correct bucket data. You'll also put in what you had for your distribution this year and it'll figure out how much income is taxable or non-taxable.

Hope this helps.

KBeck.

Richard,

I am not hysterical about this at all, just would like to be able to enter the damn transaction in Quicken so that the withdrawal, withholdings and re sidual amount all appear in categories/accounts/reports where I want them t o.

In your list of assumptions, I would agree with 1 and 2. As for your first

3) I have rather a lot of experience with taxes, having done my own for dec ades, and helped others to do theirs. I have enough experience with account ing to deal with most situations, but do get confused by some of conceptual distinctions.

While I have confirmed that the RMD is completely taxable, I still don't kn ow how to enter it in Quicken. While you maintain that it is not income fr om a financial accounting perspective, it is income from a taxation perspec tive and I would like it to show up in my personal P & L report in an incom e category with all my other taxable income. Are you saying that is imposs ible or just an improper view of the definition of "income" means from a pu re accounting perspective?

y or records has made it worse. The below came from website describing ta xation of withdrawals:

unt after age 59½ are taxed as ordinary income. You don't have to calcula te investment gains."

I would have to do some special calculations when I finally made a withdraw al; I tend to keep everything. I suspect that all the company contributi ons were deductible in the year made, and were reported as such in my tax r eturns. Certainly all my contributions after leaving the company were in t his category. So it isn't double taxation, and we can go back to trying to figure out how to enter this in Quicken if you agree :) (I'm still going to ask my old associates for details)

Hi Ken, I appreciate your patience. I have confirmed that I am entirely in the bu cket 1 situation. My entire RMD is taxable. My only issue is how to ente r this in Quicken to get *my* desired effect. If you read my answer to Ri chard, you may understand that I may be trying to do something that isn't p ossible because I want to classify the withdrawal as an income line item. I've played with various split approaches and categories, but nothing com pletely works. The closest I've come is to do a deposit to the bank account for the full amount, assigning that amount to an income category, and spli tting out the withheld taxes to separate accounts to arrive at the amount a ctually deposited in the bank. The only problem is that since there is no source for the deposit, so the Ira account does not reflect any withdrawal.

jo

ory or records has made it worse. The below came from website describing taxation of withdrawals:

count after age 59½ are taxed as ordinary income. You don't have to calcu late investment gains."

t I would have to do some special calculations when I finally made a withdr awal; I tend to keep everything. I suspect that all the company contribu tions were deductible in the year made, and were reported as such in my tax returns. Certainly all my contributions after leaving the company were in this category. So it isn't double taxation, and we can go back to trying t o figure out how to enter this in Quicken if you agree :) (I'm still goin g to ask my old associates for details)

bucket 1 situation. My entire RMD is taxable. My only issue is how to en ter this in Quicken to get *my* desired effect. If you read my answer to Richard, you may understand that I may be trying to do something that isn't possible because I want to classify the withdrawal as an income line item. I've played with various split approaches and categories, but nothing c ompletely works. The closest I've come is to do a deposit to the bank accou nt for the full amount, assigning that amount to an income category, and sp litting out the withheld taxes to separate accounts to arrive at the amount actually deposited in the bank. The only problem is that since there is n o source for the deposit, so the Ira account does not reflect any withdrawa l.

OK, I think this is kind of bouncing all over the place and at the risk of adding yet another voice to the fray, it might be beneficial to specify exa ctly which Q report(s) you're running. I run Quicken H&B, but I don't use Quicken for my business books. I don't know the details of what the report s under the "Business" node include or exclude. I do know that if I run a Profit and Loss Statement report, it doesn't return any rows.

Also, as John Pollard mentioned on Nov 28, I suspect this will be best hand le by assigning a Tax Schedule to the Tranfers In/Out of your IRA Account, if that isn't already done. To verify that, go into Account Edit mode, the n click the Tax Schedule button along the bottom edge of the Account Detail s pop-up. From there, make sure the Transfers drop down has something like "1099-R: Total IRA gross distrib."

If you've done that, I'd next run a Tax Summary report under the Tax node.

For personal tax information, I generally stick with the Tax Summary or Tax Schedule report.

Jo,

I'm glad to know that at least some of my assumptions were correct. To answer your question, shown below,

"Are you saying that is impossible or just an improper view of the definition of "income" means from a pure accounting perspective?"

YES, I'm saying that it is impossible and improper, if done correctly, to have your RMD show as income in your personal P&L. It, along with any tax withheld, WILL show in a Tax Summary report under the 1099-R section. This section also includes any income you received from pension plans. Again, if done correctly, these numbers should agree with any 1099-R tax documents that you receive in January from your pension and IRA administrators.

I wish that 'Eternal September' allowed attachments. I would attach screenshots from Quicken. However, since it does not. I going to upload some to a website and then post back the links to the screenshots so that you can visual see what I'm obviously not able to properly explain. Give me a day or two to get this accomplished and then I'll post back with the appropriate links. Hopefully these links will clarify the Quicken entry process required to properly account for a 'traditional IRA" distribution.

Richard,

You don't need to go to the trouble of posting screen shots. If it is impo ssible to get my personal P/L report to show the RMD as income, I'll have t o live with that. I don't care that it is improper from some conceptual pe rspective to have it shown there, but so be it. I know it is on the Tax Sc hedule. I know how to get Quicken to account for the withdrawal and withh olding. I just wanted what to me is logically income to show on one report . There are no other complicating considerations, and I have no doubt that the RMD will agree with my 1099R.

Thanks so much for sticking with this thread without becoming condescending . This often happens online when people are having difficulty pinpointing t he source of their mental block to a procedure and others get frustrated an d assume they are talking to a Quicken illiterate. I'm not, but that doesn 't mean that I don't sometimes try to get it to do something that it is not designed to do.

Jo

emory or records has made it worse. The below came from website describin g taxation of withdrawals:

account after age 59½ are taxed as ordinary income. You don't have to cal culate investment gains."

hat I would have to do some special calculations when I finally made a with drawal; I tend to keep everything. I suspect that all the company contri butions were deductible in the year made, and were reported as such in my t ax returns. Certainly all my contributions after leaving the company were in this category. So it isn't double taxation, and we can go back to trying to figure out how to enter this in Quicken if you agree :) (I'm still go ing to ask my old associates for details)

e bucket 1 situation. My entire RMD is taxable. My only issue is how to enter this in Quicken to get *my* desired effect. If you read my answer t o Richard, you may understand that I may be trying to do something that isn 't possible because I want to classify the withdrawal as an income line ite m. I've played with various split approaches and categories, but nothing completely works. The closest I've come is to do a deposit to the bank acc ount for the full amount, assigning that amount to an income category, and splitting out the withheld taxes to separate accounts to arrive at the amou nt actually deposited in the bank. The only problem is that since there is no source for the deposit, so the Ira account does not reflect any withdra wal.

f adding yet another voice to the fray, it might be beneficial to specify e xactly which Q report(s) you're running. I run Quicken H&B, but I don't us e Quicken for my business books. I don't know the details of what the repo rts under the "Business" node include or exclude. I do know that if I run a Profit and Loss Statement report, it doesn't return any rows.

ndle by assigning a Tax Schedule to the Tranfers In/Out of your IRA Account , if that isn't already done. To verify that, go into Account Edit mode, t hen click the Tax Schedule button along the bottom edge of the Account Deta ils pop-up. From there, make sure the Transfers drop down has something li ke "1099-R: Total IRA gross distrib."

ax Schedule report.

Hi Bart,

As you may see from my post to Richard, I am surrendering to wanting someth ing that Quicken isn't designed to do. I also have H & B, but no longer us e it for any business activity. I just use the Profit and Loss Report for all my personal income and expenses and wanted to view the RMD as income, w hich may violate some fundamental accounting rule. I don't depend on the Tax Schedule Report when doing my taxes and don't import from Quicken into TTax (what a mess it has made in the past!), but rather use my P/L as a sna pshot of all my financial activities during the year. Since I have it set to display two years of data, I get a great comparision of my financial sit uation from the prior year to the current. I just can't come up with a tr ick to have my RMD listed as income on this report, but I know it is on the Tax Schedule.

Thanks, jo

Jo,

Thank you for kind response, much appreciated. I understand your comments regarding 'mental blocks'. I have them too, but fortunately, not in this particular situation. One of this days out of the blue, the light will go on and you'll say to yourself 'Aw $%$@, why didn't I figure that out earlier. :)

I'll take one last stab at trying to help 'turn on the light'.

Your contributions to the IRA were income in the year that you earned that money that enabled you to make the contribution. An IRA is a 'TAX DEFERRED' account, not a 'DEFERRED INCOME' account'.

In a very simplistic view, think about it as taking part of a current paycheck and putting them into a regular savings account. Those earnings put into savings were part of salary income in the year earned. All of the salary shows as income in the P/L report in the year earned. All that was done was to part of it into a checking account and some into a savings account. Five years later, funds are withdrawn from the savings account and placed into the checking account. This transfer does not show as income in that year because it was five year old income. The same is true for an IRA. You are just transferring money from one account to another.

The only difference between putting money into savings versus an IRA is that income tax is paid on the savings upon deposit (i.e. earned), in the case of the IRA, the income tax is paid upon withdrawal (deferred).

Good luck, I bet the light will go on either before or during the preparation of your 2014 tax return.

richard,

I think the light started to go on yesterday and was further brightened by your explanation. !

jo