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How Do I Best Account For "Cash Source" With 401k Stock Contributions?

My employer's quarterly match is in the form of shares of the company. They deposit the shares to my 401k, and then my auto-rebalance sells those shares and uses the cash proceeds to purchase the relevant mutual fund shares. I presume the "cash source" for the initial company shares is "employer matching contribution", but when I sell those shares and use the resulting cash to buy into the mutual funds I'm elected, are those 2 transactions ALSO "employer matching contribution"?

I'm not sure how big of a role this even plays, but I'm a sucker for completionism.

Best Answer

  • Frankx
    Frankx SuperUser ✭✭✭✭✭
    edited September 2020 Accepted Answer
    Hi @crispybishop,

    There's nothing wrong with wanting to get all the details and get them right - that's just being accurate.

    You said "I presume the "cash source" for the initial company shares is "employer matching contribution" - this is correct, the contribution by your employer should be treated as a "matching contribution" when they actually match your contributions, or as an "Employer Profit-Sharing contribution" if it is an employer payment that is not a matching payment.

    You also asked "when I sell those shares and use the resulting cash to buy into the mutual funds I'm elected, are those 2 transactions ALSO "employer matching contribution"?  The answer here is "no".  The sale and reinvestment of funds already in the account (i.e. not new contributions from you or your employer) are not new sources in the account - rather they simply are taking the contributions which already have been "sourced" and placing them into different investments.

    Let me know if you have any followups.

    Frankx


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Answers

  • Boatnmaniac
    Boatnmaniac SuperUser ✭✭✭✭
    Does your 401K plan investment company allow for downloads into Quicken?  If so, why not just download the transactions from there and be done with it?  Those downloaded transactions should be set up correctly to properly account for everything.
    If they don't allow for download into Quicken or if you want to manually enter the transactions: 
    • Enter a sell transaction (of your employer's stock) with the cash proceeds directed to your 401k account cash balance. 
    • Then enter buy transactions for your mutual funds and use your account cash balance to pay for them.
    (QW Premier Subscription: R32.12 on Windows 10)
  • Frankx
    Frankx SuperUser ✭✭✭✭✭
    edited September 2020 Accepted Answer
    Hi @crispybishop,

    There's nothing wrong with wanting to get all the details and get them right - that's just being accurate.

    You said "I presume the "cash source" for the initial company shares is "employer matching contribution" - this is correct, the contribution by your employer should be treated as a "matching contribution" when they actually match your contributions, or as an "Employer Profit-Sharing contribution" if it is an employer payment that is not a matching payment.

    You also asked "when I sell those shares and use the resulting cash to buy into the mutual funds I'm elected, are those 2 transactions ALSO "employer matching contribution"?  The answer here is "no".  The sale and reinvestment of funds already in the account (i.e. not new contributions from you or your employer) are not new sources in the account - rather they simply are taking the contributions which already have been "sourced" and placing them into different investments.

    Let me know if you have any followups.

    Frankx


    Quicken H&B-Subscription - Ver. R29.20 - Build 27.1.29.20  - Windows 10 Home - Ver. 2004
                                             - - - - Quicken User since 1984 - - - 
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  • NotACPA
    NotACPA SuperUser, Windows Beta Beta
    The problem with "Employer Matching Contribution" ... is that Q expects a dollar value in the paycheck transaction.  So how would you value those shares?
    AND, since EMC to a 401k plan isn't taxable income ... I'd just record "Shares Added" followed by Shares Sold followed by MF Bought.
    If/When your employer provides the value of those "shares contributed" than you can go back and edit the "Shares Added" contribution to provide a Cost basis for the, presumably brief holding of the stock.
    Q user since DOS version 5
    Now running Quicken Windows Subscription,  Home & Business
    Retired "Certified Information Systems Auditor" & Bank Audit VP
  • @Frankx, thank you SO MUCH for your help! So is it best to leave the cash source to for those subsequent trades as just "unknown source"? All other options include the word "Contribution" of some element, so I presume unknown is the most relevant, yes?
  • Frankx
    Frankx SuperUser ✭✭✭✭✭
    Hi again @crispybishop,

    That is correct - the cash source is meant to be used only for funds coming into the account.  For all other activity you really shouldn't need to use that feature.

    Frankx


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  • That makes perfect sense. Thanks again @Frankx :smile:
  • Frankx
    Frankx SuperUser ✭✭✭✭✭
    Happy to help!

    Take care.

    Frankx


    Quicken H&B-Subscription - Ver. R29.20 - Build 27.1.29.20  - Windows 10 Home - Ver. 2004
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  • Jim_Harman
    Jim_Harman SuperUser ✭✭✭✭✭
    FWIW, T Rowe Price continues to track the cash source of investments in its downloads when there are fees, reinvested dividends or exchanges of one fund for another.

    For example, when I recently sold one fund and bought another, TRP downloaded 7 Sold transactions, 4 with Employer Match as the cash source, 2 with Employee Pretax, and one with Employee after-tax. There were also 7 corresponding Bought transactions.

    On the TRP website, the cash sources are listed as
    Before tax
    After tax
    Company match
    Company dividends
    Roth
    Seed
    Share power

    I think the duplicates in the downloaded cash sources are because there is a limited list of downloaded cash sources.

    In Quicken, the cash sources for each holding are broken out on the Holdings tab in the Online Center but they sill use the downloaded sources.. 
    QWin Premier subscription
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