Converting brokerage account to 401k account

Jim Deichen

in error I classified a deferred income account as a "brokerage" account instead of a "401k" account.  Is there a way to convert this now 2 year old brokerage account to a 401k account without losing all the transaction history most of which was entered manually?

NotACPA

What Q product are you running?  How to reply to your questions depends upon your response to my question.

Jim Deichen

Quicken 2018 for Windows

Ps56k2

and why is this important to you - to make the change ?

UKR

If you do want to make a change ...
IMHO, the easiest would be this:

• First create a backup of your Quicken data file (so you can restore if something were to go wrong with the next steps)
• Create a new "manual" 401k account in Quicken (not connected to the brokerage yet) with a opening date as of the first of this month (or next month or the first of January '19)
• In the old account use the "Transfer shares between accounts" to transfer all securities and cash balance to the new account. This transfer everything to the new account keeping lots and purchase price history intact.
• Change your paycheck reminder to start depositing your 401k deductions to the new account
• Deactivate Online Services (transaction downloading) in the old account.
• Optionally close (only in Quicken!) the old account so you can't use it any longer.
• Start using the new account from now on.
• Optionally activate the new account for transaction downloading from the brokerage.

Rocket J Squirrel

QW2018 can convert a brokerage account to a 401(k) account. In the Account Details, change Tax Deferred from No to Yes. A new button will appear at the bottom of the dialog to facilitate the conversion.

Jim Deichen

Thanks so much for the assistance on this easy conversion to a 401k plan; now my only remaining issue is how to show distributions out of this 401k account given they should be ordinary income and not a sale of a security(ies)  When I receive a distribution, each security or cash in the account is liquidated to fund the distribution so I had been showing this as a series of sale of security transactions but this treatment shows them as capital gain/loss income when they should be ordinary income.  Do I show it somehow as "Income Other" versus a sale of security??

J_Mike

Thanks so much for the assistance on this easy conversion to a 401k plan; now my only remaining issue is how to show distributions out of this 401k account given they should be ordinary income and not a sale of a security(ies)  When I receive a distribution, each security or cash in the account is liquidated to fund the distribution so I had been showing this as a series of sale of security transactions but this treatment shows them as capital gain/loss income when they should be ordinary income.  Do I show it somehow as "Income Other" versus a sale of security??

Recording Sell transactions to generate cash for distributions is the correct procedure.
Yes, there will be capital gains/losses with each sale. However, since retirement accounts are excluded from the tax reports, these gains/losses are not reported on Schedule D. The gains/losses are effectively taxed as ordinary income upon making the distribution.

Tom Young

Thanks so much for the assistance on this easy conversion to a 401k plan; now my only remaining issue is how to show distributions out of this 401k account given they should be ordinary income and not a sale of a security(ies)  When I receive a distribution, each security or cash in the account is liquidated to fund the distribution so I had been showing this as a series of sale of security transactions but this treatment shows them as capital gain/loss income when they should be ordinary income.  Do I show it somehow as "Income Other" versus a sale of security??

The sale of securities, even inside a 401(k) Account, does create capital gain or loss just like in an after-tax Account.  You've got a proceeds amount, a basis amount, and the capital gain falls out as the difference in any Account with securities in it.

Of course for tax purposes that "capital gain or loss" never makes it out of the 401(k) and onto your income tax return.  It's only distributions out of the 401(k) that count for income tax purposes, and for income tax purposes that distribution is taxed at ordinary income tax rates.

Accordingly, in any Spending report where you don't want to see "capital gain" from that 401(k) Account showing up as a form of income but you do want to see the transfers out of the 401(k) Account reported as income, you need to customize the report accordingly.  You would uncheck that 401(k) Account in the Accounts tab, (that means no activity entirely inside the Account shows up on the report), but you'd then include that Account as a "category" over on the Categories tab.

You should also open up the Account Details for the Account, select "Tax Schedule" and specify that transfers out of the Account should be reported as a 1099-R item for tax purposes.