Remove Roll Over IRA From Income (Q Mac)

Chris Mead

I just rolled over a substantial sum from my 401k to my IRA. This was a difficult exercise to balance accounts but I finally completed it. Unfortunately, in my budget, Quicken is now counting that roll over as income in actuals. From the 401K account, I used "Payment/Deposit" as the type and "Transfer: xx to yy" for the category. I have never seen a transfer impact the actuals in the budget before.

Is there a way to correct this? For example, for some reports, I use Tags and I exclude certain tags to correct reports.

jacobs

If you had a broker/custodian handle the rollover, then you're right that this should not be a taxable event and shouldn't be showing as income. (The money will count as income when you eventually withdraw it from your IRA account.)

First, can you confirm that the 401k and IRA account are both coded with the correct account types in Quicken. Or asking another way: both accounts show up under the Retirement subheading in the left sidebar, correct?

Next, is your Budget set up to include your retirement accounts? (Some people exclude them from their budget because they just want to see their operating income and expenses; some people want to see all their investment income, including retirement accounts.) If you don't need to see your retirement accounts in your budget, unchecking those accounts (Edit Budget > Select Accounts) may be all you need to do to hide the investment activity from shooting up in your budget.

But if you do want your retirement account income in your budget, then you want to dig down to eliminate the transfers from showing up in your budget. Go to Edit Budget > Select Categories, and scroll down to the letter "T", where you'll see "Transfers In" and "Transfers Out", with each listing all your Quicken accounts. If you have these checked, then unchecking one or more of the transfers (Transfers From 401k or Transfers to IRA) from inclusion in your budget should solve your problem. 

NotACPA

Did you transfer securities, or Cash, or both?

jacobs

If you had a broker/custodian handle the rollover, then you're right that this should not be a taxable event and shouldn't be showing as income. (The money will count as income when you eventually withdraw it from your IRA account.)

First, can you confirm that the 401k and IRA account are both coded with the correct account types in Quicken. Or asking another way: both accounts show up under the Retirement subheading in the left sidebar, correct?

Next, is your Budget set up to include your retirement accounts? (Some people exclude them from their budget because they just want to see their operating income and expenses; some people want to see all their investment income, including retirement accounts.) If you don't need to see your retirement accounts in your budget, unchecking those accounts (Edit Budget > Select Accounts) may be all you need to do to hide the investment activity from shooting up in your budget.

But if you do want your retirement account income in your budget, then you want to dig down to eliminate the transfers from showing up in your budget. Go to Edit Budget > Select Categories, and scroll down to the letter "T", where you'll see "Transfers In" and "Transfers Out", with each listing all your Quicken accounts. If you have these checked, then unchecking one or more of the transfers (Transfers From 401k or Transfers to IRA) from inclusion in your budget should solve your problem. 

Chris Mead

jacobs: first look, deselecting the retirement account from the budget worked fine. If I take money from the retirement account, the income shows in the transfer into my checking - which is what I want.

I'm going to experiment further. Thanks!

Chris Mead

This is a related question. Or maybe a new thread? Any transfers from the 401K show in transfer and not income. What I'm doing is moving dollars out, partly to taxes as withheld and partly to my checking account. The debit/credit between the accounts works fine. The only issue is that I have see the amount in the transfer line and mentally ad them together when running reports.

jacobs

@Chris Mead  At this time, there isn't a good mechanism for properly handling 401k or IRA withdrawals in Quicken Mac. It's an omission I consider surprising, since the Quicken folks know that a large portion of their user base is "of a certain age."

Assuming we're talking about taxable withdrawals from a retirement account, below is the short version of how I handle it. (I don't have a 401k, but I believe the rules for 401k withdrawals are the same as for traditional IRA withdrawals; if that's not the case, I'm sure someone will jump in with additional information.) 

In the retirement account, record a transaction for the sale of the security(ies), which creates cash. Do not create a transfer transaction in this account. 

In the checking (or other non-retirement destination account where the proceeds from the retirement fund ends up), create a deposit transaction for the net amount you received, with three (or four) split lines:

1. The gross amount of the withdrawal from the retirement account, as a Transfer from the retirement account
2. The same amount using the category Personal Income:Taxable IRA withdrawal
3. The negative of the same amount, using the category Adjustment
4. (If you have taxes withheld from the withdrawal) The amount of taxes withheld, using the category for Federal Tax; this negative amount summed with split line #1 add up to the net total of the deposit transaction. 

Why does this work? Transfers between accounts don't have categories (well, there's a way you can do this currently, but the Quicken folks say this is being removed because it goes against basic accounting rules), so how can you both transfer the money and record the taxable income. The trick here is using the Adjustment category, a special category in Quicken Mac which is ignored in all reporting. This allows essentially recording the taxable income (split line #2) out of thin air, because the split is offset by the Adjustment (split line #3).

Post back if anything about this doesn't make sense.

Chris Mead

Hi @jacobs,

This is not a taxable distribution. It is a Rollover IRA. In fact, there is no account type choice within Quicken for a Rollover IRA. They are treated different than traditional IRSs and per IRS rules, must be kept separate. But that said, the distribution is non-taxable. I get the conversion to cash. I also understand the distribution principle you outlined as that is how I did a standard distribution. Reports aren't well handled.

I never put my grubby hands on the cash. It goes directly into the new Rollover IRA account. But a transfer of cash INTO the new IRA account is what is happening. But the reports still show the output (or transfer) as net income. I'm able to exclude those account however as you originally opined. But this is taking a sledgehammer approach to the issue.

I'll limp along but you are right in the sense that Quicken hasn't understood the use cases of retirement rollovers and withdraws. There really should be a specific transaction for them (not an adjustment). And you may also be right that the demographic in question (mine) may be seen as computer illiterate. But then again, maybe not. Don't cut short the Baby Boomers!

Thanks for the reply. I left the question unanswered to spur some thought around rollover IRAs even though doubt it will matter.

jacobs

@Chris Mead You had indicated previously that you were having some taxes withheld, which is why I thought you were withdrawing some money or rolling it into a Roth IRA. Sorry for delving into that area if it doesn't apply here. 

In terms of rollover IRAs, I believe they are the same as a traditional IRA, both in Quicken and for tax purposes. They are not treated differently by the IRS. (Technically, a Rollover IRA is a type or subset of a Traditional IRA.) Some brokerages keep them separate, some combine them. When my wife left a job and wanted to roll over her 401k into an IRA at Vanguard, they simply rolled the 401k assets into her existing traditional IRA account and re-labelled it as a rollover IRA, even though it co-mingled funds from her former traditional IRA and the rollover 401k funds.

Okay, the fine print says there are some technical differences. Some employer plans only accept rollovers from an IRA when the IRA contains only assets from another employer-sponsored plan. So keeping those assets separate in their own IRA (rather than combining them with other assets in a traditional IRA) could preserve your ability to roll those assets into a different employer plan at a later date. (But relatively few employer plans have such a restriction nowadays.) Additionally, if assets from 401k are rolled into an a separate rollover IRA, those assets have unlimited creditor protection in federal bankruptcy law, whereas traditional IRA assets are only protected up to a limit, currently about $1.36 million. (Not an area of concern for most people.)

In any case, if you've created a separate rollover IRA account, in Quicken, identify it as Type=Traditional IRA and label the account name as XYZ Rollover so it'll be clear to you which account it which. (You might note that Quicken also doesn't have a separate 'Type' for an Inherited IRA, even though it's a special subset of IRAs, because for tax purposes, movement of funds from an Inherited IRA behave the same as a traditional IRA.)

Back to the Quicken issue. On what report are you seeing the transfer show up as income? I just did a test where I transferred funds between two retirement accounts; the transfer does not show up in an income statement (Transactions by Category) report nor the Tax Schedule report. The sale of securities in the originating account (the 401k in your case) do show up in a Category report with Realized Gains/Losses, but not in the Tax Schedule report -- but you said the Transfer transaction is what you're having an issue with. I'm not seeing where the Transfer shows up as income. 

Chris_QPW

jacobs said:

Back to the Quicken issue. On what report are you seeing the transfer show up as income? 

From the original question:

Chris Mead said:

Unfortunately, in my budget, Quicken is now counting that roll over as income in actuals. From the 401K account, I used "Payment/Deposit" as the type and "Transfer: xx to yy" for the category. I have never seen a transfer impact the actuals in the budget before.

BTW for what it worth I don't believe there is anything called a "Rollover IRA".
The fundamental difference between a 401K and IRA account is that a 401K is an employer sponsored account, whereas an IRA isn't.  And I have never heard of the ability of rolling over an IRA into a 401K account.  You can rollover a 401K account from a previous employer to your new employer.  And you can rollover your 401K to an IRA, but not back into a 401K account.

The main reason you can do this rollover is because they are taxed the same way.

jacobs

Chris_QPW said:

jacobs said:

Back to the Quicken issue. On what report are you seeing the transfer show up as income? 

From the original question:

Chris Mead said:

Unfortunately, in my budget, Quicken is now counting that roll over as income in actuals.

Yes, but I wasn't sure what the most recent post was about, as this thread has moved around several related topics. The budget isn't a report (technically), and @Chris Mead mentions reports, plural, so I wanted to clarify what Chris was describing in the most recent post. 

Chris_QPW said:
BTW for what it worth I don't believe there is anything called a "Rollover IRA".

The fundamental difference between a 401K and IRA account is that a 401K is an employer sponsored account, whereas an IRA isn't.  And I have never heard of the ability of rolling over an IRA into a 401K account.  You can rollover a 401K account from a previous employer to your new employer.  And you can rollover your 401K to an IRA, but not back into a 401K account.

The main reason you can do this rollover is because they are taxed the same way.

A Rollover IRA is not a different "type" of IRA, such as traditional, Roth, SEP, SIMPLE; it's functionally a traditional IRA. But many brokerages label them as "Rollover IRA" on official documents to denote the source of the funds. As I wrote above, there are a few technical details of rollover IRA funds which are different than regular traditional IRAs.

Yes, you can definitely go from 401k to IRA to 401k -- a "reverse rollover." (Let's say you leave one job, roll the 401k into an IRA, and later take a new job and there's some reason you want to move your investments into the new company's 401k; perhaps you like the investment choices better, or the new employer’s retirement plan might have less expensive investments, or you just want to simplify your funds by having them in one place. Or if you're still working at age 70.5, moving money from an IRA into a 401k allows you to avoid beginning required distributions, so your assets can continue to grow tax-free. Some 401k plans allow loans, while IRAs do not. And there are probably some other reasons one might want to do a reverse rollover from an IRA into a 401k.) In any case, some company plans allow employees to roll in assets from an IRA, and some may only accept funds from rollover IRAs,

And, as I also mentioned, assets in a 401k have unlimited protection in bankruptcy, whereas funds in a traditional IRA are protected only up to a limit; the unlimited protection continues for funds in a rollover IRA as long as the funds weren't mixed with traditional IRA funds.

Anyway, these are all technical details that probably don't affect 99%+ of people who participate in a 401k -- and for certain none of this pertains to any of the original questions regarding Quicken.

Chris Mead

Jacob,

Your quote, "In terms of rollover IRAs, I believe they are the same as a traditional IRA, both in Quicken and for tax purposes. They are not treated differently by the IRS. "

This is incorrect information. Please retract it. Rollover IRAs are separated. One can only "rollover" an IRA from one to another account yearly per IRS tax rules. By law, investment firms must keep them separate. How do I know? I just did it.

There is no such classification as a reverse rollover.

And not mentioned by you (and I agree not part of the original question) is that 401Ks are protected from lawsuits. IRAs are not. for this reason, professionals recommend increasing umbrella policies if monies are rolled out of 401Ks to IRAs.

Hopefully Quicken is consulting IRS regulations as it formulates requirements for its coders. We can close this comment string.

Thanks for your response!

Chris

Chris_QPW

Chris Mead said:

Hopefully Quicken is consulting IRS regulations as it formulates requirements for its coders. 

I think you have bear in mind what the developers of Quicken and therefore the answers in this forum really have to be concerned about.  They don't have to be concerned with any of this.  Yes, there are differences between the account types, but that isn't really the point.

Quicken only needs the "account types" and tax treatments that have to work "differently" in Quicken.
They don't have to create/worry about "Rollover IRAs" or if this or that rollover is possible.

jacobs

Chris Mead said:

Your quote, "In terms of rollover IRAs, I believe they are the same as a traditional IRA, both in Quicken and for tax purposes. They are not treated differently by the IRS. "

This is incorrect information. Please retract it. Rollover IRAs are separated. One can only "rollover" an IRA from one to another account yearly per IRS tax rules. By law, investment firms must keep them separate. How do I know? I just did it.

Sorry, that's incorrect. How do I know? Because my wife rolled over her 401k into an IRA at Vanguard, and Vanguard combined all the 401k funds with her existing traditional IRA funds in one account, which they labeled a rollover. Your brokerage keeps them separate, and that's fine. But it's incorrect, I believe, to say they must be kept separate by law. 

But to clarify my statement above for quoting on a stand-alone basis and not relying on the context in which it was originally written, I should have said "They are not treated differently by the IRS for the purposes of tracking taxable versus non-taxable income." Yes, there are limits on how often you can roll over funds from one account to another. That doesn't affect Quicken. There are other differences with other aspects of the law and IRS rules; I mentioned two in my posts above (regarding reverse rollovers* and bankruptcy protection), and you added a third (lawsuits) -- but none of those issues affect Quicken or the tax reporting of IRA account activity. That was the point I was trying to make.

(*A "reverse rollover" is not a type of IRA, either; it's the informal name given to a process whereby funds from an IRA can be moved into an employer-sponsored retirement account. Some call it an "IRA-to-401k rollover". But if you're doubting it can be done, here's an IRS chart which shows that Traditional IRAs can be rolled into Qualified Plans -- which include 401k's and other employer-sponsored plans.) 

For Quicken's purposes, then, there is no need to show "Rollover IRA" as a different type of account, because for what Quicken does, a rollover account is no different than a traditional IRA account. (Also note on the linked ISA chart that there is nothing referring to "Rollover IRA" as a separate type of IRA.) As I said previously, this is why Quicken doesn't need to have an account type for an Inherited IRA -- for tax-tracking purposes, flow of funds into and out of an Inherited IRA is the same as a traditional IRAs. Of course there are differences in rules for an Inherited IRA, but those are outside the scope of Quicken.