How to set up taxable IRA distribution?

I'm sure this has been answered before, but I could not find anything.

I am struggling to enter a transaction (or collection of transactions) that properly handles a monthly taxable IRA distribution. By "properly handles" I mean that I'd like for the gross amount of the distribution to be assigned to a category for Taxable IRA Distribution so that both the budget tool and the tax reports will see this as gross taxable income. However, when this distribution is paid, my IRA deducts Federal and State taxes and only the net portion of the distribution (after taxes are taken out) is deposited to my checking account.

I tried creating a split transaction in my IRA account, but it does not seem to behave like splits in my checking account and I just can't figure out a way to do this.

Let's say I do a $1000 monthly distribution. I want this to be deducted from the IRA and categorized as a Taxable IRA Distribution. From that $1000, let's say $130 is deducted to pay Federal Taxes and $40 is deducted to pay State Taxes. That leaves $830 that I want to transfer to my Checking Account.

Any ideas on how to do this? I'm willing to use multiple transactions instead of a split if that is necessary. It will be set up as a recurring transaction,

Answers

  • Frankx
    Frankx SuperUser ✭✭✭✭✭

    I would suggest that you setup that transaction as a recurring deposit to your Checking Account with split categories.  I am a Windows user, and here's what you monthly transaction would look like in Q-Win:


    Hope this translates to Q-Mac.

    Frankx


                           Quicken H&B-Subscription - Windows 10 Home - Ver. 2004
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  • bmtndog
    bmtndog Member ✭✭
    Frankx, thanks for the answer. I appreciate it.

    I've tried that. There are a couple of problems with placing the split transaction in the "destination" account.

    1) The transactions show up as 3 separate transactions in my IRA account: the net withdrawal that goes to checking, and the two tax transactions. So, when I download transactions from my brokerage, they won't match the entry in the account on Quicken. If I put the transaction in the checking account, it shows as only one gross transaction in the IRA. And, there is the mirror problem of the split transactions NOT showing up in downloads from the checking account which sees only the net transfer. This makes clearing transactions a nightmare.

    2) There is still no way to assign the gross transaction to the Taxable Withdrawal category since it shows up as a transfer instead. So, I still don't capture the gross withdrawal amount in the right category to make it show up properly in tax and budget reports.
  • bmtndog
    bmtndog Member ✭✭
    I am able to set up a split transaction in the IRA. It won't match the downloaded transactions, but I'll try to figure a way to deal with that. And, it still does not categorize the gross withdrawal as a Taxable IRA Distribution...so, the "income" won't show up in the budget tool or tax reports...
  • Frankx
    Frankx SuperUser ✭✭✭✭✭
    edited January 7
    Hi again @bmtndog,

    Sorry that my suggestion above didn't hit the mark.  My only additional thought would be to use an "exchange account" [accounting terminology - sorry].  This would be a Quicken account that doesn't connect to anything (i.e. not online so no downloads to match) and would always have a zero balance.

    The 3 entries you would be are as follows:

    1) record the IRA distribution (using gross amount):
    Account name: Exchange Acct          Increase      1,000.00
            "        "       Your IRA Acct            Decrease                       1,000.00

    2) record the tax withholdings:
    Account name: Tax:Fed                     Increase          130.00
            "       "         Tax:State                  Increase            40.00
            "        "       Exchange Acct          Decrease                           170.00

    3) record the deposit to your bank account:

    Account name: BankName Acct        Increase          830.00
            "        "       Exchange Acct          Decrease                           830.00

    Let me have your thoughts.

    Frankx


                           Quicken H&B-Subscription - Windows 10 Home - Ver. 2004
                                             - - - - Quicken User since 1984 - - - 
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  • bmtndog
    bmtndog Member ✭✭
    Frankx, I think that might work. I had that idea too (we called it a "suspense" account when I worked at a bank years ago.

    I am not sure how to associate the gross IRA withdrawal to the Taxable IRA Withdrawal category since it is a transfer to the Exchange account...

    I can solve the budget problem by simply removing the gross income and taxes and simply budgeting for the net income. Doing that only leaves me with the problem of associating the gross IRA withdrawal with an income category for tax purposes.

    I'll try your idea this month.

    Thanks again!
  • kkirby99
    kkirby99 Member
    The split transactions, as in your example above, used to work in previous versions of Quicken. But, for some reason, the feature has been changed. Now you can create the split transaction, but each month the Asset or Investment line will be blank and excluded from Budget Planning. Why?
  • Quicken_Tyka
    Quicken_Tyka Alumni ✭✭✭✭
    Hello @kkirby99

    Thank you for taking the time to visit the Community to post your issue, although I apologize that you haven't received a response.

    If you are finding that splits are missing information, can you please verify if you are syncing to the Quicken cloud?

    This is located under Edit > Preferences > Mobile & Web.




    I would try to disable sync to test if this prevents the issue from reoccurring.

    Please let me know how it goes!

    -Quicken Tyka

    ~~~***~~~
  • bmtndog
    bmtndog Member ✭✭
    This isn't going to help with kkirby99, but I will tell you how I got around my original problem. Instead of attempting to budget for the gross taxable distribution and then the fed and state taxes. I simply budget for the net distribution that is transferred to my checking account and then removed the tax amounts from the budget. This works for budgeting because I'm mostly interested in the income after taxes anyway. With this workaround, I can create a split transaction in the IRA account that will match the transaction downloaded from my brokerage.

    However, this workaround does not solve the problem of tracking taxable withdrawals for the Tax Report. Still no way to do that as far as I can tell. So, that report in Quicken is useless to me.
  • J_Mike
    J_Mike SuperUser ✭✭✭✭✭
    bmtndog said:
    I'm sure this has been answered before, but I could not find anything.

    I am struggling to enter a transaction (or collection of transactions) that properly handles a monthly taxable IRA distribution. By "properly handles" I mean that I'd like for the gross amount of the distribution to be assigned to a category for Taxable IRA Distribution so that both the budget tool and the tax reports will see this as gross taxable income. However, when this distribution is paid, my IRA deducts Federal and State taxes and only the net portion of the distribution (after taxes are taken out) is deposited to my checking account.

    I tried creating a split transaction in my IRA account, but it does not seem to behave like splits in my checking account and I just can't figure out a way to do this.

    Let's say I do a $1000 monthly distribution. I want this to be deducted from the IRA and categorized as a Taxable IRA Distribution. From that $1000, let's say $130 is deducted to pay Federal Taxes and $40 is deducted to pay State Taxes. That leaves $830 that I want to transfer to my Checking Account.

    Any ideas on how to do this? I'm willing to use multiple transactions instead of a split if that is necessary. It will be set up as a recurring transaction,
    Back to your original question.

    Create three categories with tax line assignments as follows;
    1. Income - IRA Distribution - 1099-R:Total IRA taxable distrib.
    2. Expense - IRA Fed Tax  - 1099-R:IRA federal tax withheld
    3. Expense - IRA State Tax - 1099-R:IRA state tax withheld
    Enter a split transaction in your checking account as follows;
    Split #1 - The gross distribution as a transfer from the IRA account. Assign the above category to the transfer.
    Split #2 & #3 - The fed & state withholdings (negative values) with the above categories.
    The total of the split transaction is the net deposit to checking and will match the downloaded deposit from your FI.

    In the IRA account - delete the three downloaded transactions - the net distribution and the fed & state withholding transactions. These transactions simply do not fit with Quickens tax reporting methodology.

    You should see the proper reporting of this distribution and withholdings in the Tax Schedule Report - under the 1099-R header.

    Have been recording monthly retirement distributions for 20 years and this sytem works for me.

    Can not comment on budget reporting as I am not a serious budget user.


    QWin & QMac (Deluxe) Subscription
    Quicken user since 1991

  • jimjanicki
    jimjanicki Member
    Create three categories with tax line assignments as follows;

    Income - IRA Distribution - 1099-R:Total IRA taxable distrib.
    Expense - IRA Fed Tax - 1099-R:IRA federal tax withheld
    Expense - IRA State Tax - 1099-R:IRA state tax withheld

    Enter a split transaction in your checking account as follows;
    Split #1 - The gross distribution as a transfer from the IRA account. Assign the above category to the transfer...
    ------------------------------------------------------------------------------------------------------
    Problem...There appears to be no way to assign a category to a the gross distribution since the category already contains the account that the transfer is coming from. What am I missing?
  • J_Mike
    J_Mike SuperUser ✭✭✭✭✭
    edited January 9
    Problem...There appears to be no way to assign a category to a the gross distribution since the category already contains the account that the transfer is coming from. What am I missing?
    Your profile indicates that you are a QWin user. Is this correct?
    Yhe procure described is for QMac.

    In QWin one does not create/assign a category for the transfer.
    Instead, in the Account Details for the IRA account, set the Transfers Out attribute to 1099-R:Total IRA taxable distrib.

    Enter the split transaction in your checking account register as otherwise described above.
    QWin & QMac (Deluxe) Subscription
    Quicken user since 1991

  • bmtndog
    bmtndog Member ✭✭
    J_Mike, I did try your suggestion, and it works fine for providing correct Tax Reports, but still does not solve the budget problem. Since the tax info is pretty simple in my case and easily calculated, the budget is more important to me, so I've set it up as described by me above and am reasonably satisfied. However, I do think this is an opportunity for an enhancement to Quicken--a way to capture taxable withdrawals which have taxes withheld and have accurate tax reports as well as budget reporting.
  • J_Mike
    J_Mike SuperUser ✭✭✭✭✭
    @bmtndog

    Re your Budget issue.

    I am not a regular budget user - just tinker a bit now and then,

    I do note that if I select the category 'IRA Distribution' (assigned to the transfer) in the budget, nothing shows for Actual or Budget - just $0.00 values.

    If I go to the 'Transfers In' grouping and select my IRA Account, then the Budget (Scheduled) and Actual values report.

    In other words, the Budget does not recognize categorized transfers.

    Does this help?
    QWin & QMac (Deluxe) Subscription
    Quicken user since 1991

  • jacobs
    jacobs SuperUser, Mac Beta Beta
    Categories on transfers, we've been told, will eventually be eliminated from Quicken Mac; I don't know if there are similar plans for Quicken Windows. If you have any transactions with both transfers and categories, select the transfer, not the category, for reports and budgets.
    Quicken Mac Subscription • Quicken user since 1993
  • Rocket J Squirrel
    Rocket J Squirrel SuperUser, Windows Beta ✭✭✭✭✭
    jacobs said:
    Categories on transfers, we've been told, will eventually be eliminated from Quicken Mac; I don't know if there are similar plans for Quicken Windows.
    QWin has never allowed transfers to be categorized. But the current version does allow the user to assign a tax schedule (tax line item) to any banking transaction, including transfers.
    Quicken user since version 2 for DOS, now using QWin Premier Subscription on Win10 Pro.
  • jacobs
    jacobs SuperUser, Mac Beta Beta
    Rocket J Squirrel said:
    QWin has never allowed transfers to be categorized. 
    I thought so, but some of the posts above made me think otherwise. Thanks for clarifying.
    Quicken Mac Subscription • Quicken user since 1993
  • Harold-Jr
    Harold-Jr Windows Beta Beta
    As Rocket J Squirrel noted, QWin does not allow transfers to be categorized. The real problem lies with QWin. I have a 401K as well as IRAs. Transfers from the 401K get prompted, "Is this a required withdrawal?" (or something to that effect. The withdrawals all show up in the Tax Summary Report. Since QWin correctly identifies 401k's and IRAs, the program should treat them the same..
    Is there a place to make this suggestion to the programmers?
  • Chris_QPW
    Chris_QPW Member ✭✭✭✭
    Harold-Jr said:
    As Rocket J Squirrel noted, QWin does not allow transfers to be categorized. The real problem lies with QWin. I have a 401K as well as IRAs. Transfers from the 401K get prompted, "Is this a required withdrawal?" (or something to that effect. The withdrawals all show up in the Tax Summary Report. Since QWin correctly identifies 401k's and IRAs, the program should treat them the same..
    Is there a place to make this suggestion to the programmers?
    First off I will point out that this is a Mac thread so talking about what Quicken Windows should and shouldn't have is probably the wrong place, but in my opinion it is Quicken Mac that made the mistake of allowing to categorize transfers.

    And in fact it wasn't even that way.  Quicken Essentials didn't have "linked transfers", so the only way a person could record a transfer is with offsetting categories.  Which is perfectly fine in any accounting/double book system.

    But when you combine both being able to assign a category and have a linked transfer you run into the problem of double counting the transaction which throws everything off.  That is the reason that Quicken Mac is now in the process of getting rid of categorizing transfers.  It is a major stumbling block in their reports and budgets.

    As for the tax problems even though tax lines are associated with categories they aren't one in the same.  For instance your 401K problem can be solved by setting the withdraw tax setting for the account.  That allows setting the tax line for the transfer without assigning a category that would be double counted.

    What's more another easy way to fix the tax reporting problem is just to create the right kind of split transaction in the account that the transfer is going to.
    Signature:
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  • Harold-Jr
    Harold-Jr Windows Beta Beta
    Sorry, I did not realize it was a Mac thread. I was simply looking at the topic. 
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