Accounting for IRA withdrawal in Quicken 2014


R

Richard

jo said:
jo said:
58:25 PM UTC-5, Richard wrote:
16:16 AM UTC-5, Ken wrote:
On 11/28/2014 3:11 PM, jo wrote:
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
Ira account 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?


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.

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 to mimic the actual event. However I cannot then split
the
Transfer;
Quicken blocks 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 cannot find 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?

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

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 of my current year's withdrawal is taxable to me.
This
is
a mess and obviously not a Quicken problem.

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,

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
conceptual distinctions.

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,

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

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 that the 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 not designed to do.

Jo
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,

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

jo
Jo,

GREAT!! Have a Merry Christmas and a Happy New Year.
 
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K

Ken

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 account for 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
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
$4000.
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
Withholding.)
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.

KBeck
 
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B

Bartt

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
$4000.
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
Withholding.)
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.

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

https://groups.google.com/forum/?hl=en#!topic/alt.comp.software.financial.quicken/07lprIMS3Qc

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.
 

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