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Are there any advantages to using IRA account type in contrast to a regular brokerage account?

andyc3
andyc3 Member ✭✭
edited October 2018 in Investing (Windows)
Quicken HB&RP 2018 on Win 10/64. I've been using Quicken for ages, and my wife and I have a number of deferred compensation (IRA-type) brokerage accounts set up as IRA account types. I am currently recording RMDs using the stupid (sorry) method of recording distribution splits in the receiving account rather than the originating IRA account and then deleting the actual transactions as they appear in the originating account. When my wife soon turns RMD age, the burden to do this will basically double.  (i.e., the work-around method does not scale.) So my question is what are the actual advantages of setting up IRA accounts as an IRA type as opposed to setting them up as regular brokerage accounts. Sure, one advantage is segregating all the deferred compensation accounts in there own little area. (Personally, I'd rather sort accounts by investment company rather than by function.) I can't see any other advantages or value in using the IRA account type. Are there any? Can someone please tell me what these are, explicitly, as I don't see any. But I do see big advantages in getting out from under the IRA account type restrictions.

Is there any way to change account type from IRA to brokerage by changing some identifiers somewhere? 

thanks for your suggestions and ideas,
andy

Comments

  • Unknown
    Unknown Member
    edited April 2018
    Well, IRA accounts are tax deferred accounts...whereas brokerage investment accounts are considered to be taxable accounts.

    Therefore, Quicken automatically figures that reinvested dividends and capital gains will not show up in the Tax Report nor in the Tax Planner...as those transactions are tax deferred and you've already set them up as IRA accounts.  

    Also, SELLS in an IRA account in Quicken and subsequent BUYS also have no tax consideration (such as in rebalancing one's retirement portfolio).  Quicken knows that.  In a brokerage investment account, there are capital gains to be paid.  Personally, I wouldn't want my tax deferred accounts to have capital gains calculated on any SELLS. 

    I suppose you could go through a lot of trouble and create custom categories for tax deferred vs taxable dividends and capital gains...and tax deferred SELL/BUY transactions.

    But why would you?

    I'm not quite to RMD age .... so I can't tell you how to handle that.  But if you search on this community, you might get some ideas on how to handle those Required Minimum Distributions.  
  • andyc3
    andyc3 Member ✭✭
    edited April 2018
    Good points. Thanks. I don't happen to use the Tax Report or Tax Planner built-ins, so I appreciate the reminder to look at those. You are correct that there is real value in ignoring the various capital gain -like transactions that eventually will show up as earned income.

    The manual data entry burden for RMD data entry is large and will grow larger once my wife hits RMD age. Recording receiving account IRA distributions directly into a checking account are less painful than distributions into a brokerage account, but recently I've been getting pop-up messages that ask me whether my IRA contribution is for 2017 or 2018, presumably because Quicken sees a transfer from an IRA into a cash account (perhaps triggered by the payment splits within the transaction) as an IRA contribution.  I think it would be excellent for Quicken to allow rational treatment of IRA distributions directly within the IRA account register and to have that data reported correctly in the various tax built-ins.
  • Unknown
    Unknown Member
    edited May 2020

    Good points. Thanks. I don't happen to use the Tax Report or Tax Planner built-ins, so I appreciate the reminder to look at those. You are correct that there is real value in ignoring the various capital gain -like transactions that eventually will show up as earned income.

    The manual data entry burden for RMD data entry is large and will grow larger once my wife hits RMD age. Recording receiving account IRA distributions directly into a checking account are less painful than distributions into a brokerage account, but recently I've been getting pop-up messages that ask me whether my IRA contribution is for 2017 or 2018, presumably because Quicken sees a transfer from an IRA into a cash account (perhaps triggered by the payment splits within the transaction) as an IRA contribution.  I think it would be excellent for Quicken to allow rational treatment of IRA distributions directly within the IRA account register and to have that data reported correctly in the various tax built-ins.

    This has been reported by other users.  Apparently, this is a bug in Quicken 2018, as it does not show in 2017.

    Not sure if RMD's are really any different than any withdrawal from a retirement account but the methodology I use is:

    1 SELL shares of the investment in the register, creating a cash balance.

    2 Use the Cash Transferred Out of Account transaction type, specify the transfer account (checking, in most cases) and the amount (usually the cash balance created by the Sell transaction).

    3 In the checking register, open the transaction to a SPLIT window and add any line items for tax withholding amounts...then recalculate to adjust the net transaction amount.

    Try doing it that way and report back if you STILL see the warning message for the year of the IRA contribution.  
  • andyc3
    andyc3 Member ✭✭
    edited May 2020

    Good points. Thanks. I don't happen to use the Tax Report or Tax Planner built-ins, so I appreciate the reminder to look at those. You are correct that there is real value in ignoring the various capital gain -like transactions that eventually will show up as earned income.

    The manual data entry burden for RMD data entry is large and will grow larger once my wife hits RMD age. Recording receiving account IRA distributions directly into a checking account are less painful than distributions into a brokerage account, but recently I've been getting pop-up messages that ask me whether my IRA contribution is for 2017 or 2018, presumably because Quicken sees a transfer from an IRA into a cash account (perhaps triggered by the payment splits within the transaction) as an IRA contribution.  I think it would be excellent for Quicken to allow rational treatment of IRA distributions directly within the IRA account register and to have that data reported correctly in the various tax built-ins.

    I'll try your suggestion
  • andyc3
    andyc3 Member ✭✭
    edited April 2018
    I'll try that although I think that's what I am already doing since my IRA account has sufficient cash to make the RMD. The difference is that I am creating all the transfers from the checking account side; what you suggest, and what I'll try, is creating the initial transfer from the IRA account and then editing that transfer on the checking account side to add in the tax payments as splits. I'll see if a <SAVE> at that point generates the message. My recollection is that Quicken's own instructions for this RMD transaction recording work-around is to create all the split lines, including the gross distribution within the receiving (checking) account.
  • Unknown
    Unknown Member
    edited May 2020

    I'll try that although I think that's what I am already doing since my IRA account has sufficient cash to make the RMD. The difference is that I am creating all the transfers from the checking account side; what you suggest, and what I'll try, is creating the initial transfer from the IRA account and then editing that transfer on the checking account side to add in the tax payments as splits. I'll see if a <SAVE> at that point generates the message. My recollection is that Quicken's own instructions for this RMD transaction recording work-around is to create all the split lines, including the gross distribution within the receiving (checking) account.

    Well, now I can see why you get the message.  

    Basically, in your checking account you're transferring the cash back to the investment IRA account to make it available.

    Cash INTO an IRA would account for Quicken prompting you if it's a contribution for this year or the next year, prior to April 15.  This would be no different than making a contribution...as Quicken thinks that any cash INTO an IRA would be an IRA contribution.  

    Try doing it my way.  Initiate the sell and the cash transferred out from the investment side...then split the checking account transaction to account for the tax withheld.

    I'm guessing you won't have Quicken asking you about the contribution.  

    Also, cash OUT of a retirement account will also trigger an income event...thus it will show up as taxable income in the Tax Planner module and Quicken's Tax Reports as ordinary income. 

    And you'll probably have less work to do.  
  • psobilo
    psobilo Member ✭✭✭
    edited October 2018
    Be sure your Tax category is identified correctly.  It should be '1099-R:IRA Federal Tax Withheld'.
This discussion has been closed.