Accounting for IRA withdrawal in Quicken 2014

Discussion in 'Quicken' started by jo, Nov 28, 2014.

  1. jo

    jo Guest

    First year for Ira withdrawal. Had Fed and State taxes withheld. I had cash in the Ira to cover it and received a check from my broker for the net amount. From reading various solutions online, I understand that the underlying approach is a split transaction in the receiving account but didn't grasp everything I read.

    I've entered the transaction as a transfer of the gross amount from the Iraaccount 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 income category- Ira distribution, miscellaneous, ANYTHING!

    i'M sure this is simple, but I'm just not looking at it correctly. Could 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?? John??Anyone?
     
    jo, Nov 28, 2014
    #1
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  2. jo

    John Pollard Guest

    "jo" wrote

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

    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).
     
    John Pollard, Nov 29, 2014
    #2
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  3. jo

    jo Guest

    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. I do have the Tax Line Assignments set appropriatelyand the report is correct. I seem to need just one extra trick to get this income stream reflected where I want it.
     
    jo, Nov 30, 2014
    #3
  4. jo

    John Pollard Guest

    "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".
    ---------------------------------------------------------------------------

    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.
     
    John Pollard, Nov 30, 2014
    #4
  5. jo

    Ken Guest

    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.
     
    Ken, Dec 1, 2014
    #5
  6. jo

    jo Guest

    Thanks for trying to explain how to do this. Unfortunately it still isn't working, but I also varied the procedure a bit and that may be the cause. Here's the current situation.
    1) I have what you described: a simple IRA with all of it tax deductible contributions earning income over the years. The IRA account is configured as you indicated.

    2) My first transaction was not a Deposit,but a Transfer of the gross amount from the Ira account to my checking. That seemed like the logical way tomimic the actual event. However I cannot then split the Transfer; Quickenblocks me.

    3) The closest I could come to getting anything correct was to Transfer each component of the total to my checking: the actual amount received, and the federal and state tax withheld. That accomplished reducing my Ira balance and assigning the withheld taxes to the correct categories, but I cannotfind any place, either in the Tax Planner, or in my P/L that the gross amount shows up as income. I really want it to appear in that latter, along with all other income. Having it just in the TAx Planner wouldn't suffice, even if it did work.

    What am I missing?
     
    jo, Dec 5, 2014
    #6
  7. jo

    Zaidy036 Guest

    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.
     
    Zaidy036, Dec 5, 2014
    #7
  8. jo

    Richard Guest

    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.
     
    Richard, Dec 5, 2014
    #8
  9. jo

    jo Guest

    I am completely confused :( I can see this is likely going to be a tax nightmare. 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 retire 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 your 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 monthly, assuming I was contributing at all. I don't have my tax returns from 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 Fidelity and there were a few years where I was doing a little consulting and 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 contributing and just let my financial advisor adjust the mix of investments. There 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 ofmy current year's withdrawal is taxable to me. This is a mess and obviously not a Quicken problem.
     
    jo, Dec 5, 2014
    #9
  10. jo

    jo Guest

    Ken,

    I think we have made my situation overcomplicated, and my lack of memory orrecords has made it worse. The below came from website describing taxation 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 investment gains."

    I doubt that I would have tossed all records if I had any inkling that I would 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 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 going to ask my old associates for details)

    jo
     
    jo, Dec 5, 2014
    #10
  11. jo

    Richard Guest

    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.
    3. 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.
     
    Richard, Dec 6, 2014
    #11
  12. jo

    Ken Guest

    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 $2000 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 $2000 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.)

    2. 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 $2000, 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."

    3. 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.
     
    Ken, Dec 6, 2014
    #12
  13. jo

    jo Guest

    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 residual amount all appear in categories/accounts/reports where I want them to.

    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 decades, and helped others to do theirs. I have enough experience with accounting to deal with most situations, but do get confused by some of conceptualdistinctions.

    While I have confirmed that the RMD is completely taxable, I still don't know how to enter it in Quicken. While you maintain that it is not income from a financial accounting perspective, it is income from a taxation perspective and I would like it to show up in my personal P & L report in an income category with all my other taxable income. Are you saying that is impossible or just an improper view of the definition of "income" means from a pure accounting perspective?
     
    jo, Dec 9, 2014
    #13
  14. jo

    jo Guest

    Hi Ken,
    I appreciate your patience. I have confirmed that I am entirely in the 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 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 completely works. The closest I've come is to do a deposit to the bank accountfor the full amount, assigning that amount to an income category, and splitting 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 no source for the deposit, so the Ira account does not reflect any withdrawal.

    jo
     
    jo, Dec 9, 2014
    #14
  15. jo

    Bartt Guest

    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 exactly 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 reports 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 handle 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, then click the Tax Schedule button along the bottom edge of the Account Details 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 TaxSchedule report.
     
    Bartt, Dec 9, 2014
    #15
  16. jo

    Richard Guest

    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, Dec 10, 2014
    #16
  17. jo

    jo Guest

    Richard,

    You don't need to go to the trouble of posting screen shots. If it is impossible to get my personal P/L report to show the RMD as income, I'll have to live with that. I don't care that it is improper from some conceptual perspective to have it shown there, but so be it. I know it is on the Tax Schedule. I know how to get Quicken to account for the withdrawal and withholding. 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 thatthe 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 the source of their mental block to a procedure and others get frustrated and 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 notdesigned to do.

    Jo
     
    jo, Dec 11, 2014
    #17
  18. jo

    jo Guest

    Hi Bart,

    As you may see from my post to Richard, I am surrendering to wanting something that Quicken isn't designed to do. I also have H & B, but no longer use 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, which 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 snapshot 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 situation from the prior year to the current. I just can't come up with a trick to have my RMD listed as income on this report, but I know it is on theTax Schedule.

    Thanks, jo
     
    jo, Dec 11, 2014
    #18
  19. jo

    Richard Guest

    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, Dec 12, 2014
    #19
  20. jo

    jo Guest

    richard,

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

    jo
     
    jo, Dec 12, 2014
    #20
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