I contribute to a roth 401k account, a roth 401k has the same tax setup as a roth ira so my contributions are post tax, grow tax free and are not taxable at withdrawal. But that is only partially true, turns out that an employee contribution is withdrawn tax free but the employer contribution (which is calculated pre-tax) is taxed at withdrawal. Is it woth it to track the employee and employer contributions separatley in order to see the tax implications when I retire? And if it is important to do that how would I do it? I am just converting to Quicken 2006 home and business from Money 2006 so I am still learning the software. If it is not worth tracking these two contributions independently then I am still not sure how to set it up, I am assuming I would set up as an "Other After-Tax Deduction" but how would you catagorize that?
This is very interesting. I didn't consider the employer's contribution in the Roth 401(K) as having different tax consequences as your contribution. But look at:
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. It says "There is, however, a twist to the Roth 401(k)s. Employees will place an after-tax amount in contributions to the Roth 401(k). But the employer match for the contribution--up to 3% of income at most companies--will go into a separate regular 401(k) account. This would enable the company to deduct its cumulative match contributions up front from its corporate income taxes."This seems to me to indicate that no only will you want to track them separately, but indeed you may very well HAVE TO since they'll be in different accounts?
So how would you recommend setting that up in quicken, that is how would you set it up so that the employers contribution is tracked in an account separate from the employee contribution and how would you catagorize each contribution? I just started using quicken this weekend so I apologize if it is obvious how to do this.
How does the FI report the holdings to you? - do they separate the holdings/earnings or do they just combine them? Do you download account activity? - or enter it manually from statements?
Answers to these questions will help in devising a tracking strategy - it's going to be a work-around since QW does not [yet?] offer this type of 401k account.
My initial inclination would be to set up two separate accounts - both tax-deferred brokerage accounts. Would not use the '401k' account type in order to retain full flexibility - you can always convert sometime down the road if appropriate or desireable - buts it is a one way step
- you can not reverse it.
As an aside, FWIW, my 401k was established as a tax-deferred brokerage account long before QW offered the specific 401k account type - have not changed it and have no problems tracking or with tax implications.
Seems this is an example of where sub-accounts would be a very useful feature.
I cannot seem to find a statement at the moment, I logged onto the site and it appears that the contribution deposits are recorded separately and I see that the investment purchases are made separately (see below for an example).
10/03/2006 Stock A Safe Harbor Match Contributions Purchase
10/03/2006 Stock A Employee Roth 401k Contributions Purchase .
Download is not available so I will have to manually enter the data and I really want to set this up in the simpliest manner possible. My thoughts are that I will set this up so that contributions are entered when I enter my paycheck transactions and any other deposits are receipts I will enter just once per quarter.
Any suggestions on how to do this so that I can minimize manual work?
Given that QW does not have provision for the Roth 401k - and looking ahead to the day you retire and start making withrawals: I would set up separate accounts; one for your contributions, investments and growth and one for the employer match. These accounts should be tax-deferred.
Your contributions can be easily handled in the paycheck as an after-tax deduction - a transfer to the appropriate account.
For the match, I would set up a scheduled deposit [monthly?] to the 'Match' account - have it automatically entered in the register on or about your regular payday. QW has a box for category for the deposit - the QW category '_401EmployerContrib' is not available [??] in the drop-down box but you can create a category for this. This category will not have a tax-line assignment - it has no tax implication at present.
This should easily match the deposit activity reportd by your FI.
You can then enter the Buys, Sells and income events from info provided by the FI.
My primary reasoning for the two-account approach is for handling future with-drawals. The draws from your contribution account will be fully tax-free. The draws from the match account will be fully taxable as ordinary income. Draws from a single account would be taxable on a pro-rata basis - some percentage taxable - perhaps the ratio of employer/employee contributions if they are always consistent. QW has no provision to split draws on a tax-free/taxable basis - they are either one or the other and not a mix.
Down the road, if QW does make provision for the Roth 401k account, you could then probably combine the accounts by transfering holdings.
For reporting purposes and comparing to the FI's statements, seems one could create customized reports which included these two accounts - holdings, transactions, etc.
Thanks for the detailed response. I am going to try your recommendation this weekend and see how it works.
As a side note (not a quicken question) I wonder what is going to happen when I quit this job and roll my roth 401k over to my brokerage company. I would assume it would roll into a roth ira rather than a traditional but where would the pretax dollars (the employer contributions) go? I am sure they would not roll into the roth ira unless I paid the tax during the roll over. I guess they would end up in a traditional ira so that I would pay tax at withdrawal. I already have both a roth and traditional ira so I think my existing accounts could take the roll over without creating anything new. It will be interesting when that day comes.
To be truthful - did not really think it through - was focused on the method I had used for employee contributions in pre-QW 401k account days. In those days did not use a transfer to the 401k account for employer contribution as I had the tax attribute for 'Transfers In' set to handle the pre-tax situation for my contributions.
As you point out, setting up the employer contribution in the paycheck would work but result in register entries for zero employee contributions. Nothing wrong with this other than 'clutter' in the register..
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