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Report tax implications of transfer to/from retirement account

I'm using Quicken Deluxe, syncing to checking/savings, investment accounts, and a number of retirement accounts. My problem: Getting quicken to properly record the tax consequences of transfers to/from a retirement account.

For example, I recently did a Roth conversion, where funds are taken from an IRA account and moved to a Roth account. That showed up in Quicken as a $X transfer from the IRA to Roth account, plus an additional $Y withheld to pay Federal taxes. So Quicken knows about the withholding, but but $X+Y is taxable income, and I can't see how to make this all work.
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Answers

  • FrankxFrankx SuperUser ✭✭✭✭✭
    Hi @urbanian,

    From the description above, it is difficult to understand the transactions that were made in Q to effect the conversion and whether they were "downloaded" or manually made.  That being said, I would suggest that you record the activity as two separate transactions.  The first would be to record the "conversion" transaction in the taxable IRA account - which is a withdrawal (which is entirely taxable) and transfer into the Roth account. And a second transaction of withdrawing funds from the Roth account to cover the estimated tax payment (posted to appropriate tax categories).

    Let me know if you have any followup questions.

    Frankx


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  • NotACPANotACPA SuperUser, Windows Beta Beta
    In Q, you can't record tax transactions in a tax-deferred account.
    SO, what you need to do is to transfer the FULL amount (X+Y) to a cash type account and split that transaction in the cash account to show, in the split, the full amount as coming from the IRA, a NEGATIVE amount going to the taxes and the remaining amount going into the ROTH.  Thus, the amount displayed in the Cash account will be $0.  You'll also need to have the Transfer attributes of the iRA and the ROTH set properly.
    Q user since DOS version 5
    Now running Quicken Windows Subscription,  Home & Business
    Retired "Certified Information Systems Auditor" & Bank Audit VP
  • J_MikeJ_Mike SuperUser ✭✭✭✭✭
    NotACPA said:
    In Q, you can't record tax transactions in a tax-deferred account.
    SO, what you need to do is to transfer the FULL amount (X+Y) to a cash type account and split that transaction in the cash account to show, in the split, the full amount as coming from the IRA, a NEGATIVE amount going to the taxes and the remaining amount going into the ROTH.  Thus, the amount displayed in the Cash account will be $0.  You'll also need to have the Transfer attributes of the iRA and the ROTH set properly.
    This reply is on the right track - except for the last sentence; "You'll also need to have the Transfer attributes of the iRA and the ROTH set properly."
    The reference to :Transfer attributes" applies to QWin - not QMac.

    QMac does not employ transfer attributes for accounts.
    Instead, create categories for the Fed and State withholdings.
    Assign tax line items "1099-R:IRA federal tax withheld" and "1099-R:IRA state tax withheld" respectively.
    Assign these categories to the withholdings entries in the :cash type" account.

    QMacs' Tax Schedule Report should now pick up the tax related info.
    QWin & QMac (Deluxe) Subscription
    Quicken user since 1991

  • NotACPANotACPA SuperUser, Windows Beta Beta
    OOPS, thanks for the correction.  Didn't notice that this is a QMac thread.
    Q user since DOS version 5
    Now running Quicken Windows Subscription,  Home & Business
    Retired "Certified Information Systems Auditor" & Bank Audit VP
  • urbanianurbanian Member ✭✭
    To answer a question asked way up front, yes, these transactions were downloaded from the broker account. They showed up in Quicken as "Uncategorized." The trouble is, they then show up as uncategorized expenses in the norma income/expense reports, which makes our cash flow look awful. (Retirement accounts are assets, after all.) For example, the "Overview, Spending By Category" and "Net Income" charts look really bad.

    My first impulse was kind of like what's suggested here: Change them to transfers to some "temporary" cash account, then record the withholding as an expense from there, and then transfer the conversion part back to the Roth. (No tax impact or need for a category on that part.)

    But, since the transfer from IRA to "temp account" is "just a transfer," there's no category, and no way to convince Quicken Mac to count that as income. (Apparently QWin can do that.)

    Let's take a simpler case that probably many have dealt with. What if it was just a normal distribution from an IRA account? Yes, you could record that as a transfer (the full amount) from IRA to checking, but then record the withholding amount as an offsetting split on the checking account side. (Or record the withholding as an expense directly from the IRA.) But which ever way you do it, the income doesn't get reported anywhere.

    What I *could* do is just record it in the checking account as a split, with an income category and a withholding expense category, basically what I do with my paycheck now. (No, not quite retired yet. Close.) That would nicely record the income and withholding expense. But still, there are those "uncategorized" transactions that would show as income or expense.

    Now, if I could select the accounts to show in the Overview, that would be great, but no such luck. The old Mac Quicken let you do that. Not the new one. (I've been using Mac Quicken for almost as long as it's existed.)

    I suppose what could work would be to split the tax-deferred accounts (the ones that generate income on withdrawals) into a separate Quicken file. Then transfers in/out in the main file would be recored as categories. That would work, and maybe not too much of a pain switching back and forth?
  • FrankxFrankx SuperUser ✭✭✭✭✭
    Hi @urbanian,

    I can feel your pain as you struggle to figure out how to handle this event in Quicken. In this latest post you are apparently trying to deal with this question "But which ever way you do it, the income doesn't get reported anywhere".

    Based on your original post I believe that we jumped on trying to answer the "how do I record the taxable income" question, which is really not something that needs to be included in your Quicken file anyway (unless you import into a tax prep program from Quicken, which could easily be solved by a manual entry in the tax program for this unusual event).

    So let's start over and actually look at what happened and didn't happen by your conversion of a traditional IRA to a Roth IRA.

    First, what happened:

    1) you moved investment assets from one investment vehicle to another vehicle. That is simply a transfer of assets, you didn't "earn any income" through that transfer; its like moving cash from one bank account to another in its purest sense.  You actually had previously earned those "assets" - they were part of your prior compensation for work performed.

    2) as part of that transfer, you also took a part of the overall transfer and made a prepayment of income taxes (which is actually just another type of asset).

    3) as a result of the transfer, you did cause those assets to become subject to income taxes in the year they were moved.  The income taxes you will be required to pay were effectively deferred in the year you actually earned those monies

    Second, what didn't happen:

    1) through this process you didn't create or earn any "income" you just transferred assets.

    2) you didn't incur an expense yet (on a cash basis) you used part of the transfer to prepay income taxes that will possibly be due in the future.

    The bottom line is that there is no "income" earned or even generated by this conversion.  yes there will be a tax impact - you will be paying what is actually called "deferred taxes" in accounting lingo on previously earned but untaxed funds.  If you make the transactions I suggested above, you accomplish all that's needed in Quicken.

    Let me know if you have any follow-up questions.

    Frankx


    Quicken H&B-Subscription - Ver. R29.20 - Build 27.1.29.20  - Windows 10 Home - Ver. 2004
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