Accounting for IRA withdrawal in Quicken 2014

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

  1. jo

    Richard Guest


    GREAT!! Have a Merry Christmas and a Happy New Year.
    Richard, Dec 13, 2014
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  2. jo

    Ken Guest

    Back again. And I realize that you've more or less had the light dawn.
    But Quicken really _does_ handle this correctly. With one snivvy that
    might not be clear.
    As it happens my wife has an inherited IRA with an RMD that we've been
    getting for the past few years.
    So, once a month, Ye Financial Institution cashes out a certain number
    of shares of a mutual fund, in the value of the monthly RMD.

    So far, so good. That's what they're supposed to do. Here's where it
    gets tricky.

    In their statements, and what gets downloaded into Quicken, they deduct
    the Federal Taxes at a rate that we specified. (I'll come back to that
    after we get through the tricky part.)

    Next, in their statements, they then transfer what remains into a
    taxable account with that same financial institution. For tax purposes,
    it would be the same as if they cut me or my wife a check and sent it to us.

    So, just playing math, Cash_Received = (RMD - TAX_WITHELD).

    Now, how does Quicken handle this?

    First, Quicken knows that distributions from IRAs are special. In
    Quicken, go to Tools->Account List, then click the Edit button for the
    IRA account. You'll see little check boxes about tax deferred and such.
    At the bottom of the Account Details screen you'll see a button for Tax
    Schedules. Click on that.

    You'll see, or you should see, that Transfers Out are associated with
    1099-R Total IRA taxable distrib. As it should be. Sort of.

    So, in Quicken, when you transfer money out of the account, in the Tax
    Planner this shows up as income. On my 2015 Quicken, this is under
    Planning, Tax Center button, then Show Tax Planner. In the Tax Planner
    the IRA income shows up in Other Income as Taxable IRA/Pension
    Distributions. Yes, you _will_ be getting a 1099-R this coming year from
    your financial institution. And the money ends up in Line 15B of the
    full 1040 form, or at least it did last year.

    Now we get to the tricky part where Quicken misses the boat. Suppose
    that your total RMD in 2014 is $5000 and the financial institution
    nabbed $1000 of that and sent it to the Feds, then sent you a check for
    Quicken sees _only_ that you got a transfer out of the account in the
    amount of $4000. And, for tax purposes, it rather ignores the fact that
    you paid $1000 in federal tax withholding, probably because it has the
    account type marked as a tax-free type of account. Oops. So it shows (or
    at least, in the versions of Quicken before 2015 it shows) your taxable
    income from the distribution as $4000 and it ignores the fact that you
    paid $1000 in taxes to the Fed. Oops again.

    How to fix: Quicken kung-fu.
    1. Download ye transactions from the financial guys. You'll typically
    have three of them:
    a) Them selling off some security or other for the appropriate RMD
    amount. (The $5000).
    b) Them taking out the taxes. (Tax:Fed). ($1000 in Federal Tax
    c) A transfer to a taxable account. (the $4000 you get.)
    2. Note that in your taxable account you have a deposit of $4000,
    following my example here.
    3. Kung-Fu step #1: Write down the amount in 1b, then delete that
    transaction. (The $1000 goes away).
    4. Kung-Fu step #2: Change the transfer out of the account in 1c to the
    full RMD value. ($5000)
    5. Kung-Fu step #3: Change the transfer into the taxable account into a
    split transaction.
    a) First split item: $5000 from the IRA.
    b) Second split item: -$1000 as a withholding to the Feds.
    (Tax:Fed). You remembered to write down the amount before you deleted
    it, right? :)

    Results of the Kung-fu:
    1. Quicken sees a $5000 transfer out of the account. That's the correct,
    taxable amount as far as it's concerned and the money goes into the
    correct places in the tax planner, including as a full $5000 income IRA
    distribution. Yea!
    2. Quicken sees a $1000 payment to the Feds. This also shows up in the
    tax planner because it happened in a taxable account, and it shows up in
    the right place, too, as Tax Withholding. Assuming that you got the
    correct category in the split.
    3. You end up with $4000 in your taxable account, which, frankly, is the
    amount of the check they sent you.
    4. If you run a Reports->Tax->Tax Schedule or Tax Summary, the numbers
    come out correctly.

    So, yeah, by default Quicken doesn't get it Quite Right, but a little
    Kung Fu fixes that.

    Hope that helps.

    Ken, Dec 13, 2014
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  3. jo

    Bartt Guest

    or, you can try a slightly different method of modeling tax withholdings if you make quarterly payments:!topic/

    In which case, you'd just book that downloaded $1,000 transfer out of your IRA straight to the Q account that holds your quarterly payments & the Tax Schedule setting on the IRA account would work for the w/held amount.
    Bartt, Dec 15, 2014
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