IRA investment shares vs. Roth investment shares

I'm currently using Quicken '0p9 Deluxe. At some time in the past I discovered it was necessary to differentiate between shares of stock in regular investment or IRA accounts vs. shares of stock in Roth accounts.

I have, for example, Fidelity Spartan Total Market Index, and also Fidelity Spartan Total Market Index Roth. They are both designated as FSTVX.

I cannot remember why I differentiated any longer, but the differentiation is getting me into trouble. For example, last year I converted some IRA to Roth and had the whole problem of accounting for the name change (Index -> Index Roth). Later I partially recharacterized and, once again, the name change (Index Roth -> Index).

What's the proper way to handle this mess?

Reply to
Gary
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I can't think of any reason to need a different name for the same security because it exists in a Regular and a Roth IRA account. [I can think of a reason for having two names for a security (apparently) held in a 401k account and any other investment account type.]

The cumbersome (but clean) method for "fixing" the problem would be to manually change the name of the security that occurs in the fewest Quicken transactions, then deleting the unused name.

The only other way I know of to handle the situation, is to use a Corporate Acquisition transaction, to have one fund name "acquire" the other fund name, issuing one new share for each currently held share.

Reply to
John Pollard

Hi, Gary.

The shares are identical. The owners are different legal entities.

I know the distinction is commonly ignored. But different laws apply to individuals, to IRAs, and to Roth IRAs.

An IRA is not simply one of Gary's bank or broker accounts. Technically, the assets in the IRA Trust do not legally belong to Gary at all; they belong to the Trustee of the IRA Trust for the Benefit of Gary. That Trustee is legally bound by a fiduciary duty to act in Gary's best interest, but the title to those assets is in the name of the Trustee, not in Gary's name. The assets in Gary's Roth IRA also do not belong to Gary - or to the Trustee of Gary's regular IRA - but to the Trustee of Gary's Roth IRA. To confirm this, look at the names on your broker's or banker's annual statements of the accounts.

I'm well aware that all this legal mumbo-jumbo is simply for tax purposes. But it has legal effects, nonetheless, and those effects should be recognized and recorded. But most people don't do that.

This might be a good place to point out that I am not and never have been a lawyer. For 30 years, I practiced public accounting and, for the last 15 of those years, I specialized in taxation, especially the Federal income tax and estate tax. But I've been retired for almost 20 years, so I am not up to date on current tax matters. When I use legal terms, it is only as a layman, not as someone trying to practice law.

In my opinion, IRA assets - Roth or other - should never be included in an individual's Quicken file. There should be a separate Quicken file for each IRA trust, and that also means a separate Quicken file for a Roth IRA trust. A single trust may hold multiple accounts (such as stocks at Merrill Lynch and Edward Jones, plus CDs at Wells Fargo), and all accounts for a single trust should be within the same Quicken file. But Gary's Intuit shares should be in a separate Quicken file from the IRA Trustee's Quicken shares, and the Roth IRA Trustee's Quicken shares should be in still another Quicken file. (Or, like most people, just let the Trustee broker or bank handle the Trustee's accounting. But, either way, keep the Trustee's assets and transactions out of Gary's file!)

When Gary contributes to his IRA, he should record - in Gary's Quicken file - the check to the IRA Trustee. Whatever the Trustee does with the money is the Trustee's responsibility and should be recorded in the Trustee's Quicken file, not in Gary's. So, if the Trustee uses the money to buy Intuit shares, then the Trustee should record the investment; Gary should not. Then, in some far-distant time, after Gary's retirement, when the Trustee writes checks to Gary, then Gary can record the pension income in Gary's Quicken file. In the long meantime, any dividends or interest received by the IRA and any capital gains (or losses) on the Trustee's stock should be recorded by the Trustee, not by Gary. This is why Gary's individual income tax returns will not report such income or capital gains. Ditto for the Trustee of the Roth IRA.

Sorry for the long answer to a short question, but you did ask for "the proper way".

As I said, I know these technicalities are regularly ignored. But ignoring them is what makes the logic so confusing, especially when an out-of-the-ordinary transaction occurs, including when identical shares are held by the multiple for-tax-reasons-only legal entities. When all the details are handled properly from the beginning, the accounting is pretty simple. But trying to go back and correct years of mishandling can be a long and tedious exercise.

As I also said, I am not a lawyer and my accounting and tax knowledge are WAY out of date. So be sure to consult your own attorney and/or CPA for authoritative advice on these matters.

RC

Reply to
R. C. White

.-- Hi R.C. - just to post an opposing view - and I immediately yield to your superior knowledge and wisdom (that's not sarcastic - I've learned a lot from you over the years, and I hope we can agree to disagree)...but! ...

Ione does this, does not one lose one of Quicken's major abilities to, one place, organize one's life's financial records? For example, I get a monthly statement from Vanguard that contains BOTH my IRA/ROTH IRA and Individual Investments. They are all indeed listed individually, but there is also a bottom line summary that I can quickly see what they hold in total. If I had separate files, I'd spend a lot of time running different reports, manually checking against different sections of the paper (or web copies) etc.

I understand what you are saying might be technically true, but it would put a large burden on the average person trying to use Quicken to consolidate one's life's assets without gaining virtually ANYTHING that I can see if you indeed split assets from one Q file to another. To the AVERAGE person, an IRA or Roth is simply another account in the same financial institution holding other non-qualified assets.

As John said, if the OP had used the same security name and just created different accounts in Q (as most of us do for this sort of thing I assume. I hold the same Index 500 fund in both retirement and non-retirement funds), the 'problem' would not have occurred.

I just can't believe the average user of Q would gain any benefit, and indeed lose a LOT (another example is simply writing a check to 'buy' more shares in your IRA account for your annual purchase easily) in one splits their IRA and non-IRA accounts into separate Quicken file sets.

------------------------------------------------------------- Regards -

- Andrew

Reply to
Andrew

RC, why do you say that? I have my IRA in my regular account. That makes it very easy to transfer funds from the IRA to the checking account every month.

If I'm missing something, and there's a good reason to do as you suggest, please explain why.

Thanks.

Reply to
Ken Blake

Hi, Andrew.

More than once I said that I know most people don't do it this way. But Gary DID ask for "the proper way".

Still using Gary as an example, his individual "balance sheet" should not show the shares held in his IRA accounts. Those don't belong to him. What he does own is an expectation that someday the IRA Trustee will pay him a payment or a stream of payments out of that IRA Trust. But it is well-nigh impossible for us mere mortals to calculate the present value of such a future stream - or to understand it if some actuary were to make the calculations for us. The topic is just too esoteric for most of us to get a handle on.

For many decades, Americans worked for Sears, GM and other corporations. They got paychecks, which they recorded as income currently. They also got an expectation of a pension when they retired some day. Until recently, those expectations turned out to be valuable. Now, not! :>( If you had been employed by Sears in the 1970's, would you have included as an asset on your own balance sheet the pension that you expected to get from Sears some day? Probably not; I doubt that very many Sears employees recorded those expectations. Even now, do you record in Quicken and report on your financial statement the present value of your expectation of a pension from Social Security? I don't, and I doubt that you - or anybody else - does.

In theory, the expectation of a pension from Sears or Social Security is just as calculable and just as much an asset as the expectation of a return at some future point from the IRA. (Nowadays, many people consider SS just as intangible and just as subject to devaluation or complete loss as the promised pensions from Sears and GM. We can hope that Gary's IRA will be more secure than those.)

I'm not trying to tell Gary or you (or Ken - Hi, Ken!) how you must keep your books. Heck, I have plenty to do just keeping my own books, and I've never even had an IRA or pension plan of any kind. I'm not saying to ignore the IRA assets! Just recognize that they belong in a different pocket from assets that are titled in your own name. But I am trying to explain why accounting for IRAs is more complex than it appears to most people.

Former MVP Bruce Sanders>>

Reply to
R. C. White

Thanks RC - I certainly understand what you are saying. I think when he asked about the 'proper way', he was referring only to the problem about how his share's names were being handled which is different than the whole method of handling the methods of the accounts, but I certainly can be wrong here.

I do realize what you say may very well be factually true, but if one implemented a personal use model using Quicken what you end up with in practicality limits Q's usefulness. I make automatic monthly payments to a number of different IRAs - if I had to manually do more than I already have to do because they'd be in totally separate Q files sets, I'd go nuts!

------------------------------------------------------ Regards -

- Andrew

Reply to
Andrew

I was just in the process of removing "IRA" and "Roth" from my transactions, using only the name of the fund, because I couldn't recall the reason I had, for example, a "Fidelity Total Market" and, separately, a "Fidelity Total Market IRA" and a "Fidelity Total Market Roth".

Then it occurred to me that the reason I separated them in the first place was to be able to report my assets by investment goal. Only one goal is alllowed per security, and I wanted to be able to generate reports such as the one below (numbers doctored):

Portfolio Values By Investment Goal - As of 7/1/2009:2

As of 7/1/2009

Security Shares Price Cost Basis Gain/Loss Balance

(No Goal)

-Cash- xxx.xx 0.00 503.28

TOTAL (No Goal) xxx.xx 0.00 503.28

Investment

Canada 100 1.000 xxx.xx 0.00 x,xxx.xx

Mut Beacon 80.186 9.690 xxx.xx -100.00 x,xxx.xx

Mut Discovery 04.531 24.290 xxx.xx 100.00 x,xxx.xx Vang Prime MM 0.040 1.000 0.04 0.00 0.04

Walt Disney 3.130 23.330 3.08 69.95 73.03

TOTAL Investment x,xxx.xx -xxx.xx x,xxx.xx

IRA

Fid Spartan Tot Mkt IRA 4.332 26.050 917.58 100.00 x,xxx.xx

TOTAL IRA 917.58 100.00 x,xxx.xx

RothIRA

Fid Sp Tot Mkt Ind Roth 58.400 26.050 x,xxx.xx -200.00 x,xxx.xx LowPricedStockRoth 1.001 25.900 x,xxx.xx 100.00 xx.xx

Vang Ind Tot Adm Sh Roth 99.052 22.500 x,xxx.xx -200.00 x,xxx.xx Vang Tot Int St Index ... 79.237 11.950 x,xxx.xx 100.00 x,xxx.xx

TOTAL RothIRA x,xxx.xx -200.00 x,xxx.xx

TaxFree

Blackrock NY Ins Muni ... 58.590 12.020 x,xxx.xx 100.00 x,xxx.xx

Vang NY LT Tx-Ex Fund 75.984 10.630 x,xxx.xx 100.00 x,xxx.xx Vang NY Tx-Ex MM Fund 68.290 1.000 x,xxx.xx 0.00 x,xxx.xx TOTAL TaxFree x,xxx.xx 200.00 x,xxx.xx

TOTAL Investments x,xxx.xx 100.00 xx,xxx.xx

Reply to
Gary

Now that you mention it, I do seem to recall others reporting doing something similar. I have never been enamored of the idea myself.

I see Investing Goal as the goal of the security ... not the goal of the account where the security is held. The goal of a security is basically determined by the management of the company. The goal of a "growth" fund is to produce growth, no matter what account-type you hold it in. The goal of an "income" fund is to produce income, no matter what account-type you hold it in.

And, as you've noticed, the practice of creating multiple Quicken securities for the same real-world security, has its drawbacks. I guess you'll have to decide for yourself if the benefits are worth the cost.

Reply to
John Pollard

Good point, and I haven't yet decided.

But I'd just like to add one more observation (no, I'm not debating, except within myself):

Roth money is after-tax money, so on a net worth report, $1 of Roth money has a totally different interpretation than $1 of investment money or IRA money.

IRA money is the only money I have that can become Roth money (I'm retired, no earned income). That's also a very good number to know.

Investment money is the only money I have to pay for IRA-Roth conversions (technically, but not practically, I could also pay for the conversion with converted IRA money itself).

As you might infer, I'm trying to move toward a tax-reduced (already paid) financial life.

Reply to
Gary

[Having only one Quicken name for the same real-world security also permits reports/displays that provide information about the same security no matter which account it's held in. Sometimes that can be useful.]

It seems like the Quicken account determines the "goal" for your purposes.

You could create two or three Portfolio Value reports - customized to show only the accounts that have the same "goal" - and Save each one.

If you feel you really have to have it all in one report, you could export to Excel, and create a report there that grouped accounts and subtotalled according to your goal

Reply to
John Pollard

Speaking of using Excel, I have one last question (at least for a few minutes), if I may:

Do you know if is it possible, in Quicken, to generate a historic report with, say, a monthly date interval, in which dates are rows rather than columns? I'm particularly interested in a table of Net Worth (bottom line, not the details), that looks something like

Date Net Worth

1999-12 1,000.00 2000-01 1,010.15 2000-02 1,020.17 ... 2009-09 412.15

Thanks in advance!

Reply to
Gary

I don't know of any Quicken report or display that would do that.

Reply to
John Pollard

Reply to
ebloch

Nonetheless, John, thanks for all your help on this whole subject (actually it is one of many subjects where your knowledge was extremely helpful).

Reply to
Gary

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