RMD & Tax

I take my RMD withdrawals monthly. I structure the deposit to my checking account as a split: Line #1 is the full monthly RMD withdrawal (before withholding) with category Pension Pmt; Line #2 is the tax withholding (a negative amount) with category Tax Fed This yields the proper deposit amount in checking and also in my yearly report by Category.

Hi, wabbleknee.

Account for the taxes withheld from your retirement account the same way you do - or did - for taxes withheld from your paychecks. The fund no longer has your money, of course; that has already been sent to the IRS. The IRS has commingled the money withheld from your fund distribution with what was withheld from your salary (if any in 2012) and whatever you might have paid as estimated taxes for the year. At year-end, you should get a statement from the fund that shows the amount withheld. Combine that with other withholdings and report it, along with any you paid on 1040-ES. If it adds up to more than your tax for the year, you should get a refund; if not, you may have to pay more.

We've discussed how to account for payroll withholding and estimated taxes here many times, so I won't rehash the whole subject here. Briefly, though, all the withheld amounts are still YOUR money; the government is just holding it for you (interest-free) until you determine your actual liability. And, since we compute income tax on an ANNUAL basis, we can't know the actual tax for the year until we know ALL the different kinds of income - and deductions and credits - for the year.

You haven't actually paid your taxes yet, even though the IRS has your money. Your money is "in some holding account", as you said. In accounting-speak, your money is still your ASSET, and should stay in an asset account (mine is called "Prepaid Federal Income Tax") until you file your return. At that time, record your actual tax as an expense and deduct it from that asset, leaving the amount of the refund you expect. Or, of course, see how much more you must pay after applying that asset to your actual tax liability.

I've been retired for over 20 years, and retirement funds never were my strong suit. And my Quicken archives are not at hand just now, but someone here should be able to rind and repost at least one of our prior discussions of estimated taxes and withholding.

RC

-- -- R. C. White, CPA San Marcos, TX (Retired. No longer licensed to practice public accounting.) snipped-for-privacy@grandecom.net Microsoft Windows MVP (2002-2010) (Using Quicken 2013 Deluxe R 8 and Windows Live Mail in Win8 x64)

What would be the accepted way of doing this:

Took my RMD from xyz investments of say $10k, told them to with hold %20 for Taxes. In Q I show a withdrawal of $10K, but how do I show the Taxes part. $8K deposit in checking, $2K in some holding account? Then after I file taxes, do I take the $2k out of holding and into cash?

Thank you for the insight. Still have a little "hang up" with two possible outcomes. 1. In the example I gave, 2K sits in "Prepaid Fed income tax" account, at filing time, I owe 3K (hope not) but I would expense the entire amount out + the difference. 2. I only owe 1.5K, expense that out, but what do I do with the $500 remaining? I would get a refund check in the mail for $500 at some point. Now I have an Asset in the Prepaid account, and when I cash the check I will have an Asset in my checking. This is the part that is not computing for me. Assume I would transfer the $500 from the Prepaid account to cash because of the refund check? Also, in theory, at the completion of taxes and no "hick-ups" , the Prepaid account for that year = 0. Tx again!!

Hi, wabbleknee.

Account for the taxes withheld from your retirement account the same way you do - or did - for taxes withheld from your paychecks. The fund no longer has your money, of course; that has already been sent to the IRS. The IRS has commingled the money withheld from your fund distribution with what was withheld from your salary (if any in 2012) and whatever you might have paid as estimated taxes for the year. At year-end, you should get a statement from the fund that shows the amount withheld. Combine that with other withholdings and report it, along with any you paid on 1040-ES. If it adds up to more than your tax for the year, you should get a refund; if not, you may have to pay more.

We've discussed how to account for payroll withholding and estimated taxes here many times, so I won't rehash the whole subject here. Briefly, though, all the withheld amounts are still YOUR money; the government is just holding it for you (interest-free) until you determine your actual liability. And, since we compute income tax on an ANNUAL basis, we can't know the actual tax for the year until we know ALL the different kinds of income - and deductions and credits - for the year.

You haven't actually paid your taxes yet, even though the IRS has your money. Your money is "in some holding account", as you said. In accounting-speak, your money is still your ASSET, and should stay in an asset account (mine is called "Prepaid Federal Income Tax") until you file your return. At that time, record your actual tax as an expense and deduct it from that asset, leaving the amount of the refund you expect. Or, of course, see how much more you must pay after applying that asset to your actual tax liability.

I've been retired for over 20 years, and retirement funds never were my strong suit. And my Quicken archives are not at hand just now, but someone here should be able to rind and repost at least one of our prior discussions of estimated taxes and withholding.

RC

-- -- R. C. White, CPA San Marcos, TX (Retired. No longer licensed to practice public accounting.) snipped-for-privacy@grandecom.net Microsoft Windows MVP (2002-2010) (Using Quicken 2013 Deluxe R 8 and Windows Live Mail in Win8 x64)

What would be the accepted way of doing this:

Took my RMD from xyz investments of say $10k, told them to with hold %20 for Taxes. In Q I show a withdrawal of $10K, but how do I show the Taxes part. $8K deposit in checking, $2K in some holding account? Then after I file taxes, do I take the $2k out of holding and into cash?

Hi, wabbleknee.

A Split transaction entered into your checking account should handle either situation. Based on your examples:

1. Balance Due: Record the ,000 check amount. In the Split box, charge ,000 to Federal Income Tax Expense; credit ,000 (by charging a MINUS ,000) to Prepaid Federal Income Tax. This should reduce the Prepaid account to zero, but might not, if there have been additional amounts withheld in the current year.

2 Refund: Record the $500 received as a deposit. In the Split box, charge the $1,500 to Federal Income Tax Expense; credit $2,000 (by charging a MINUS $2,000) to Prepaid Federal Income Tax. This should reduce the Prepaid account to zero, but might not, if there have been additional amounts withheld in the current year.

In each case, credit the prepaid account with the full amount as of the end of the tax year, including the estimated tax payment in January of the next year. In either case, the amount remaining in the Prepaid account should equal payments made (or withheld) for the current (following) year's tax.

This subject confuses many taxpayers. It's depressing to hear a friend say, "I didn't pay any income tax last year; I got a refund." Many can tell you exactly how much the IRS refunded, but can't tell you within a hundred dollars (or maybe a thousand dollars) how much the IRS KEPT!

If you overpaid your estimate and have a refund coming, you can choose to apply some (or all) of the overpayment to next year's estimated tax. In that case, your year-end balance in the Prepaid account will not reduce to zero, but will carry over the balance that will be added to next-year payments. Some Quicken users choose to create separate Prepaid accounts for each tax year, just to keep payments made FOR each year separate from payments made DURING each year.

RC

-- -- R. C. White, CPA San Marcos, TX (Retired. No longer licensed to practice public accounting.) snipped-for-privacy@grandecom.net Microsoft Windows MVP (2002-2010) (Using Quicken 2013 Deluxe R 8 and Windows Live Mail in Win8 x64)

Thank you for the insight. Still have a little "hang up" with two possible outcomes. 1. In the example I gave, 2K sits in "Prepaid Fed income tax" account, at filing time, I owe 3K (hope not) but I would expense the entire amount out + the difference. 2. I only owe 1.5K, expense that out, but what do I do with the $500 remaining? I would get a refund check in the mail for $500 at some point. Now I have an Asset in the Prepaid account, and when I cash the check I will have an Asset in my checking. This is the part that is not computing for me. Assume I would transfer the $500 from the Prepaid account to cash because of the refund check? Also, in theory, at the completion of taxes and no "hick-ups" , the Prepaid account for that year = 0. Tx again!!

Hi, wabbleknee.

Account for the taxes withheld from your retirement account the same way you do - or did - for taxes withheld from your paychecks. The fund no longer has your money, of course; that has already been sent to the IRS. The IRS has commingled the money withheld from your fund distribution with what was withheld from your salary (if any in 2012) and whatever you might have paid as estimated taxes for the year. At year-end, you should get a statement from the fund that shows the amount withheld. Combine that with other withholdings and report it, along with any you paid on 1040-ES. If it adds up to more than your tax for the year, you should get a refund; if not, you may have to pay more.

We've discussed how to account for payroll withholding and estimated taxes here many times, so I won't rehash the whole subject here. Briefly, though, all the withheld amounts are still YOUR money; the government is just holding it for you (interest-free) until you determine your actual liability. And, since we compute income tax on an ANNUAL basis, we can't know the actual tax for the year until we know ALL the different kinds of income - and deductions and credits - for the year.

You haven't actually paid your taxes yet, even though the IRS has your money. Your money is "in some holding account", as you said. In accounting-speak, your money is still your ASSET, and should stay in an asset account (mine is called "Prepaid Federal Income Tax") until you file your return. At that time, record your actual tax as an expense and deduct it from that asset, leaving the amount of the refund you expect. Or, of course, see how much more you must pay after applying that asset to your actual tax liability.

I've been retired for over 20 years, and retirement funds never were my strong suit. And my Quicken archives are not at hand just now, but someone here should be able to rind and repost at least one of our prior discussions of estimated taxes and withholding.

RC

What would be the accepted way of doing this:

Took my RMD from xyz investments of say $10k, told them to with hold %20 for Taxes. In Q I show a withdrawal of $10K, but how do I show the Taxes part. $8K deposit in checking, $2K in some holding account? Then after I file taxes, do I take the $2k out of holding and into cash?

R C you are the best, ok got it now. Charging a minus amount :o)

Hi, wabbleknee.

A Split transaction entered into your checking account should handle either situation. Based on your examples:

1. Balance Due: Record the ,000 check amount. In the Split box, charge ,000 to Federal Income Tax Expense; credit ,000 (by charging a MINUS ,000) to Prepaid Federal Income Tax. This should reduce the Prepaid account to zero, but might not, if there have been additional amounts withheld in the current year.

2 Refund: Record the $500 received as a deposit. In the Split box, charge the $1,500 to Federal Income Tax Expense; credit $2,000 (by charging a MINUS $2,000) to Prepaid Federal Income Tax. This should reduce the Prepaid account to zero, but might not, if there have been additional amounts withheld in the current year.

In each case, credit the prepaid account with the full amount as of the end of the tax year, including the estimated tax payment in January of the next year. In either case, the amount remaining in the Prepaid account should equal payments made (or withheld) for the current (following) year's tax.

This subject confuses many taxpayers. It's depressing to hear a friend say, "I didn't pay any income tax last year; I got a refund." Many can tell you exactly how much the IRS refunded, but can't tell you within a hundred dollars (or maybe a thousand dollars) how much the IRS KEPT!

If you overpaid your estimate and have a refund coming, you can choose to apply some (or all) of the overpayment to next year's estimated tax. In that case, your year-end balance in the Prepaid account will not reduce to zero, but will carry over the balance that will be added to next-year payments. Some Quicken users choose to create separate Prepaid accounts for each tax year, just to keep payments made FOR each year separate from payments made DURING each year.

RC

-- -- R. C. White, CPA San Marcos, TX (Retired. No longer licensed to practice public accounting.) snipped-for-privacy@grandecom.net Microsoft Windows MVP (2002-2010) (Using Quicken 2013 Deluxe R 8 and Windows Live Mail in Win8 x64)

Thank you for the insight. Still have a little "hang up" with two possible outcomes. 1. In the example I gave, 2K sits in "Prepaid Fed income tax" account, at filing time, I owe 3K (hope not) but I would expense the entire amount out + the difference. 2. I only owe 1.5K, expense that out, but what do I do with the $500 remaining? I would get a refund check in the mail for $500 at some point. Now I have an Asset in the Prepaid account, and when I cash the check I will have an Asset in my checking. This is the part that is not computing for me. Assume I would transfer the $500 from the Prepaid account to cash because of the refund check? Also, in theory, at the completion of taxes and no "hick-ups" , the Prepaid account for that year = 0. Tx again!!

Hi, wabbleknee.

Account for the taxes withheld from your retirement account the same way you do - or did - for taxes withheld from your paychecks. The fund no longer has your money, of course; that has already been sent to the IRS. The IRS has commingled the money withheld from your fund distribution with what was withheld from your salary (if any in 2012) and whatever you might have paid as estimated taxes for the year. At year-end, you should get a statement from the fund that shows the amount withheld. Combine that with other withholdings and report it, along with any you paid on 1040-ES. If it adds up to more than your tax for the year, you should get a refund; if not, you may have to pay more.

We've discussed how to account for payroll withholding and estimated taxes here many times, so I won't rehash the whole subject here. Briefly, though, all the withheld amounts are still YOUR money; the government is just holding it for you (interest-free) until you determine your actual liability. And, since we compute income tax on an ANNUAL basis, we can't know the actual tax for the year until we know ALL the different kinds of income - and deductions and credits - for the year.

You haven't actually paid your taxes yet, even though the IRS has your money. Your money is "in some holding account", as you said. In accounting-speak, your money is still your ASSET, and should stay in an asset account (mine is called "Prepaid Federal Income Tax") until you file your return. At that time, record your actual tax as an expense and deduct it from that asset, leaving the amount of the refund you expect. Or, of course, see how much more you must pay after applying that asset to your actual tax liability.

I've been retired for over 20 years, and retirement funds never were my strong suit. And my Quicken archives are not at hand just now, but someone here should be able to rind and repost at least one of our prior discussions of estimated taxes and withholding.

RC

What would be the accepted way of doing this:

Took my RMD from xyz investments of say $10k, told them to with hold %20 for Taxes. In Q I show a withdrawal of $10K, but how do I show the Taxes part. $8K deposit in checking, $2K in some holding account? Then after I file taxes, do I take the $2k out of holding and into cash?

I want to take my RMD monthly. It is in a Vanguard Fund that is an IRA. I want to withdraw $2000 per month and have Vanguard take 10% for the IRS. The remaining $1800 I would like to transfer to my Vanguard Money Market account which is not an IRA account. I then will withdraw funds from the Money Market account on an as needed basis. How do I enter the transactions to cover this. Thanks for any and all help.

BTW: I have tried looking thru Q help and they do not have anything on Ira Withdrawals. I also tried going to the Q Chat service. I was unable to make myself understood there.

I am ready to replace Q. Does anyone know of a decent substitute?

You can review what R.C. told me above. Make it a split transaction, one going to your MMA (1800) and the other part(200) to an account, named something like "Prepaid Fed Tax". Then its between you and Vanguard on withdrawing funds from your MMA as needed. You can call a Vanguard account rep to set it up, they have been very friendly/cooperative to me.

I want to take my RMD monthly. It is in a Vanguard Fund that is an IRA. I want to withdraw $2000 per month and have Vanguard take 10% for the IRS. The remaining $1800 I would like to transfer to my Vanguard Money Market account which is not an IRA account. I then will withdraw funds from the Money Market account on an as needed basis. How do I enter the transactions to cover this. Thanks for any and all help.

BTW: I have tried looking thru Q help and they do not have anything on Ira Withdrawals. I also tried going to the Q Chat service. I was unable to make myself understood there.

I am ready to replace Q. Does anyone know of a decent substitute?

Wabbleknee, Thanks for your reply. I track the IRA as an Investment Account. When I go to the register for that account I do not see any way to enter a Split Transaction.

My RMD withdrawal consists of the following: Withdraw the required amount from my IRA account, pay 10% of that amount as Federal Tax and transfer the balance to my Money Market account. With your help and some effort on my own I have done the following which seems to have worked and has my Quicken data in sync with my Vanguard data.

1 From the IRA account enter a SoldX transaction and transfer the cash amount to my MM account. 2 In my MM account I will now have an XIn transaction showing the cash from the IRA account. 3 In the MM account I entered a Bought transaction for the cash amount less the Fed Tax amount of 10% 4 In the MM account I entered a MiscExp transaction for the Fed Tax amount.

This seems to be working for me. Thanks to all.