IRA Distribution Recording - 3 Steps? [edited]

SHARON SACHS · April 2021

IRA Distribution requires 3 steps in order to finalize. They cancel out and end up negative.
1. Sell Stocks
2. Transfer funds to sweep option
3. Transfer funds to Checking account.

What am I doing wrong?

[edited for readability]

jacobs · April 2021

Okay, I feel like we're making progress…

So far we have established:

In the real world, you sold securities in your IRA account on 3/24/21. This was manually entered as a sale in your Quicken IRA account, creating a cash balance in the IRA account.

In the real world, the proceeds of the sale were moved from the IRA account to the SSO account on 3/26/21. In your Quicken IRA account, you say you recorded this happening, so let's drill down on how you made those entries.

The best way is with a transfer. It would look something like this:

If you enter this in one of the accounts, then the opposite entry will automatically show up in the other account. Note that there is no Category from the Category list; this is a transfer of funds from one account to another, so it's not income or expense*. (If you use Quicken for tax reporting purposes, then there are some additional wrinkles to get this money to show up as a taxable IRA withdrawal on the tax report, but let's ignore that for the moment so you can get the basic transactions squared away.)

So now, the IRA account should show a zero cash balance (or whatever amount it showed before the 3/24 sale of the securities), and the SSO account should show the correct balance as of the 3/26 deposit of the proceeds.

Finally, we can turn to the final step in the process: the transfer of funds from the SSO account to your checking account. You could do this as a single transfer transaction between the two accounts, similar to above. The only downside to that is with a linked transaction, there's only one date on both sides of the transfer. If a physical check was sent and later deposited into your checking account, and preserving those different dates is important to you, you could enter a check payment from the SSO account on 3/29 and a separate deposit transaction in your checking account on whatever day you deposited it. But if it was an electronic funds transfer, and you don't mind if the date on one side of the transaction might be off by a day or two, then doing a Transfer in Quicken is the simplest. The withdrawal from your SSO account should return its balance to whatever it was before the stock sale, and the deposit in your checking account completes the transfer of funds from the IRA account to the SSO account to the checking account.

Again, none of the transactions described above create and income or expense. Originally, you wrote that something was negative, and I want to make sure we have solved that problem.

When all the accounts are correctly showing what happened, we can return to the wrinkle of how to make the IRA withdrawal show up as a taxable IRA distribution, if you want Quicken to track that.

jacobs · April 2021

I described above getting the money from the SSO into the checking account, so I'm not sure what you're still questioning or having trouble with when you write "the final item is to get it deposited in the checking account"?

Meanwhile, let me tackle the tax issue. So far, all the money has just been transferred, first from the IRA account to the SSO account, then from the SSO account to the checking account. Transfers are movements of money from one asset to another, so by definition, they aren't income. Well, that's a problem in this case, because a withdrawal from an IRA account is taxable income. Quicken Mac doesn't have a great way to do this, so users have devised workarounds. (There is currently a way to assign a Category to a Transfer, but the product manager has said they will eliminate this loophole at some point, so I'm not going to show you doing it that way.) Instead...

We need to somehow get the transfer from a retirement account to a non-retirement account show up as income, and in the correct category. I don't know if your SSO account is under Retirement or not in the left sidebar. I'm going to guess that it's a non-retirement account. (If that's a wrong guess, then everything which follows can be the same, except you'll do it on the transfer to the checking account from the SSO account instead.) Quicken knows retirement accounts are tax-free, so creating income inside the retirement account won't get it to show up on a tax report. Instead, you need to show the income in a non-retirement account for this trick to work.

This is actually quite simple, but the first time you look at it, it may seem convoluted or just not make sense. Take your time with it and follow the steps closely. I've created dummy transactions to show what this looks like. In my example below, the amount is $1,000; obviously use whatever the correct number for your transaction is. I created a dummy IRA account called "My IRA" and a dummy SSO account called "SSO Cash Account"; again, substitute your actual account names, and just follow the process.

Currently, you have a simple transfer from your IRA account to your SSO account. Here's the money going out of the IRA account…

…and here's the SSO account showing the other side of that transfer with the money coming into the SSO account…

We need to somehow create $1,000 of income, and assign it a category connected to the correct tax assignment for a taxable IRA withdrawal. Quicken by default has such a Category, called "Personal Income:Taxable IRA Withdrawal." (If you open the Categories Window and double-click on this category, you will see it is assigned to tax form 1099-R on the tax line for IRA taxable distribution.)

The trick involves editing the Transfer transaction in the SSO account. It is very important that you do what follows in the non-retirement account; if you do this on the IRA account side of the transfer, it won't work, because income is ignored inside the IRA. So in the SSO account, click on the existing transfer transaction and open it to the Splits tab. (Shortcut to do this in one step: click the transaction to highlight it and press Command-Option-S). Add a split line to recognize the income. It's going to take a little fighting with Quicken to get it right.

Above, I have opened the splits tab and added a split line with the category Personal Income:Taxable IRA Withdrawal and the $1,000 amount. Notice that Quicken immediately removed the $1,000 from the first split line (the transfer), because it's trying to maintain the splits adding up to the original $1,000 transaction amount. But this isn't what we want to do, so you need to manually re-enter the $1,000 amount on the first split line, which will in turn cause Quicken to create a third split line with an amount of –$1,000:

Okay, so now we have the total $1,000 deposit amount (which is correct), the first split line performing the $1,000 transfer from the IRA account (which is correct), and the second split line creating the taxable income of $1,000 (which is correct). Perfect… except we now have a third split line with a –$1,000 amount just hanging there. We have no more income, expense or transfer, so how do we get this –$1,000 to just "go away"? The answer is using a special Quicken category called Adjustment, which tells Quicken to simply ignore this amount in all reports. So here's what the finished transaction looks like:

It seems a bit goofy, and it is -- it's a workaround for Quicken not having a way to categorize an IRA withdrawal. But this transaction accomplishes everything you need. The amount is withdrawn from your IRA account and deposited into your cash account, and the amount is credited to the proper taxable income category. Run a Tax Schedule report and you will see your taxable income showing up in the correct area:

Run a Transactions by Category report, and you'll see the income reported correctly there, too:

And that's it! A little convoluted, but everything is in the right place.

John_in_NC · April 2021

Howdy, Sharon:

Yes, you typically sell a fund(s) and transfer this cash over to a checking account.

I can't see what exactly is going on with your particular IRA, but I suspect the Sweep account is where the issue is. Often, this sweep account is simply Buys and Sells of a Money Market account account. Is this within your actual IRA account, or is it a separate account within Quicken? Each brokerage works differently.

Where do things "cancel out and end up negative"? The Roth or Checking account?

SHARON SACHS · April 2021

Thanks for your reply. I'll try to explain in more detail. We have IRA accounts; one for me and one for my spouse. Shares are sold and transfered to a Stock Sweep Account for him and another account for me. These are accounts set up by the inestment firm. From there a check is electronically deposited into our joint checking account. What ends up in Quicken is usually a negative when I do reports for tax purposes. I hope you understand what I'm saying. I've redone it many times and now have it to the point that the extra is an uncateragized figure and I have it as a distribution for each of us. I just don't like sloppy bookkeeping!

John_in_NC · April 2021

I'm still am not clear as to what is going on. ("What ends up in Quicken is usually a negative when I do reports". What is negative? An account? A category? The $ representation in Quicken, or your tax reports?

I do suspect this issue is in regards to your sweep account. You should have the sale of your IRA securities that ends up giving you a cash balance distribution. Since you have a sweep account, your brokerage will likely show a buy of the equivalent cash in a money market fund (MMF). I don't know if how your brokerage represents this: some simply show cash, others report shares held in the MMF, and others actually setup a completely separate account. But, in the end, it is the same.

When the check gets sent to you, you should have a respective Sell transaction of that money market fund to reduce the cash in the sweep fund.

jacobs · April 2021

Let me try to add to John's on-target comments…

In Quicken Mac, every investment purchase uses cash and every investment sale generates cash. So when you sell some shares of a security in your IRA account, the transaction converts the security's value to cash, and you end up with a cash balance in your IRA account in Quicken. What happens next depends on how your financial institution deals with that cash. If it just sits as a cash balance in your account in the real-world, it should sit as a cash balance in your account in Quicken as well. If it is turned into shares in a money market account in the real world, you have two choices about how to handle it in Quicken: leave it as cash, or record a purchase of shares of the money market fund. What happens in Quicken when you download such a transaction from your brokerage? Is the Sweep Account a separate account in Quicken, is it a money market security in the retirement account, or is it just the cash balance of your investment account?

Depending on your answer about what happens when the cash is generated from the security sale will then guide the final step, which is the withdrawal of cash (potentially preceded by a sale of money market shares, if present), followed by a transfer of cash to your checking account.

SHARON SACHS · April 2021

I so appreciate your help in this matter and I apologize if it sounds a little confusing.
#1 - IRA shares are sold for required distribution
#3 - Distribution funds go in to Stock Sweep Option ( set up by financial institution)
#4 - Check is drawn by financial institution from SSO and automatically deposited into personal checking account.
As a side note the SSO is used for dividends from our stock account and then we use those funds to pay for our advisory fees. This shouldn't matter with the problem I'm having, but I just wanted to give all the info possible.
I have funds that are handled for distribution the same way, but my account for cash is a different title. All the steps are the same.

I pray that you master minds can get me straightened out. lol

SHARON SACHS · April 2021

I'm in trouble, I can't even get the numbers right!!!!

jacobs · April 2021

@SHARON SACHS I understand your description of what happens in the real world account. You haven't answer the questions I asked about what happens in your Quicken account(s). Is the sweep account a separate account in Quicken, or is it part of the IRA account? Is the cash generated by the sale of securities (or dividends) showing as Cash in your Quicken account, or as a purchase of shares in the SSO account? What we're trying to do here is figure out how to make what's happening in your Quicken records parallel what's happening in the real world.

SHARON SACHS · April 2021

The SSO is a separate account in Quicken. The cash is generated by dividends and shows as cash in Quicken. There are no shares in the SSO account.
I'm also wondering if it's a category problem. I've all different ways of titling the transactions thinking that the disbursement should only be labeled one time, but where and which account?

jacobs · April 2021

@SHARON SACHS Okay, so let's walk through this one step at a time…

You sold a security(ies) in your IRA account. In Quicken, you see this sale in your IRA account, correct?

The result of this sale, in Quicken, is cash in your IRA account.

In the real world, this cash is being moved by your brokerage into a Stock Sweep Option account. In Quicken, you have a Stock Sweep Option account.

Does the SSO account show the deposit of cash on the day you sold your security(ies)?
Does your IRA account in Quicken show the withdrawal of cash on the same day?

If the answer to the former is yes and the latter is no, that's where there's a problem. (Or at least the first place). In Quicken there should be a Transfer of funds from the IRA account to the SSO account. I'm guessing this doesn't exist, but please confirm before I jump further ahead making any incorrect assumptions.

SHARON SACHS · April 2021

I just got the files out and the sale of stocks was on 3/24/21. The funds were transfered to the cash account on3/26/21. The funds were then transfered again on 3/29/21 (this had to be the check to our personal checking account).
I hope that answers the question. We did not receive any copy of the check as it was electronically processed.
Thank you.

SHARON SACHS · April 2021

These are the same dates I have in Quicken as are in the investment file.

jacobs · April 2021

@SHARON SACHS Thank you for that information, but no, it doesn't answer the questions I asked.

You're saying the sale of stocks in your IRA account happened on 3/24/21. In Quicken, do you see this sale in your IRA account?

You're saying the proceeds of the sale were moved to the SSO account on 3/26/21. I asked two questions about that:

In Quicken, does the SSO account show the deposit of cash on 3/26/21?
In Quicken, does your IRA account show the withdrawal of cash 3/26/21?

SHARON SACHS · April 2021

Yes to all questions

SHARON SACHS · April 2021

Just some more info. I don't download the information from the investment firm. I enter every transaction myself into Quicken from the reports.

jacobs · April 2021

Okay, I feel like we're making progress…

So far we have established:

In the real world, you sold securities in your IRA account on 3/24/21. This was manually entered as a sale in your Quicken IRA account, creating a cash balance in the IRA account.

In the real world, the proceeds of the sale were moved from the IRA account to the SSO account on 3/26/21. In your Quicken IRA account, you say you recorded this happening, so let's drill down on how you made those entries.

The best way is with a transfer. It would look something like this:

If you enter this in one of the accounts, then the opposite entry will automatically show up in the other account. Note that there is no Category from the Category list; this is a transfer of funds from one account to another, so it's not income or expense*. (If you use Quicken for tax reporting purposes, then there are some additional wrinkles to get this money to show up as a taxable IRA withdrawal on the tax report, but let's ignore that for the moment so you can get the basic transactions squared away.)

So now, the IRA account should show a zero cash balance (or whatever amount it showed before the 3/24 sale of the securities), and the SSO account should show the correct balance as of the 3/26 deposit of the proceeds.

Finally, we can turn to the final step in the process: the transfer of funds from the SSO account to your checking account. You could do this as a single transfer transaction between the two accounts, similar to above. The only downside to that is with a linked transaction, there's only one date on both sides of the transfer. If a physical check was sent and later deposited into your checking account, and preserving those different dates is important to you, you could enter a check payment from the SSO account on 3/29 and a separate deposit transaction in your checking account on whatever day you deposited it. But if it was an electronic funds transfer, and you don't mind if the date on one side of the transaction might be off by a day or two, then doing a Transfer in Quicken is the simplest. The withdrawal from your SSO account should return its balance to whatever it was before the stock sale, and the deposit in your checking account completes the transfer of funds from the IRA account to the SSO account to the checking account.

Again, none of the transactions described above create and income or expense. Originally, you wrote that something was negative, and I want to make sure we have solved that problem.

When all the accounts are correctly showing what happened, we can return to the wrinkle of how to make the IRA withdrawal show up as a taxable IRA distribution, if you want Quicken to track that.

SHARON SACHS · April 2021

Thank you! I had discovered earlier that there were more column selections available for these accounts, but I didn't figure it out completely. The transfers work perfectly. The final item is to get it deposited in the checking account and show up on the tax schedule and budget. I'm not sure if it's a category problem or not. I used Quicken many years ago and loved the program, but had to leave when they didn't keep up with the mac. So, I have a very large list of categories that are somewhat hard to manage. I don't want to delete any that are in past records, but not needed any more.
If you have and work around on the final deposit I will certainly appreciate it. You've been and incredible help to me and I really appreciate it.

jacobs · April 2021