IRA distribution

tlb2020

Trying to account for money withdrawn from IRA and deposited into bank account less taxes withheld? The first thing the instructions I found says "Set the tax attribute "Transfers Out:" for the IRA account to "1099-R:Total IRA taxable distrib." How do I do this?
Why do I have to do this? Isn't this a normal life event that quicken should already know how to do? Detailed instructions would be helpful for how to enter withdrawal from IRA and transfer funds to bank account and report income and taxes. Thanks.

Mark1104

first, you don't have to set the tax attribute if you are not using Quicken to track taxable events.  Otherwise, go to Account details for your IRA account and ensure that the radio button is set to 'tax deferred'.  Then at the bottom of the screen, there is a button marked "tax schedule".... you want to set the 'transfer out' to 1099-R IRA' so it appears on the canned tax reports in Quicken, but again if you don't care about this then don't worry about it.  this reports the income.  

Jim_Harman

The best way to enter a taxable IRA distribution is to transfer the gross amount to your taxable account, then edit the transaction in the taxable account to make a split that shows the deduction(s) for taxes, leaving the net amount as the amount deposited.

tlb2020

Thanks. I guess my problem is when I use TRANSFER from ira to bank it doesn't show up as "income" unless I include all transfers in reporting. If I do that it shows all the various bank transfers in reporting which I don't want and is why I've been excluding transfers in reporting. I've tried several times to figure this part of quicken out but maybe someday they'll find a better way because to me it's just messy. Thanks anyway.

Boatnmaniac

@tlb2020 - To answer your second question:  I do not know why the instructions say that you need to set the tax attribute of the IRA account.  Maybe it is an instruction from many years ago that has not been updated but in today's version that tax attribute should have automatically defaulted to "1099-R:Total IRA taxable distrib." when you set up the IRA account.  Still, it is good to check to verify that the correct tax attribute is listed.

Jim_Harman

If you want the transfer from the IRA to show as "income" in a Spending report (accountants would say it's not really income but that is a topic for another discussion) you should customize the report to exclude the IRA account from the Account selections.

Then on the Advanced tab under Transfers, select Exclude internal.

On the Categories tab, you should scroll down to the bottom of the list, include the IRA account, and exclude any accounts you to not want to treat as "income". 

Budget reports work somewhat differently.

Jim_Harman

And if you think Quicken should make improvements in this area, please review, comment, and vote on this Idea discussion.
https://community.quicken.com/discussion/7864626/improve-handling-of-ira-distributions-qcds-and-roth-conversions 

q_lurker

@tlb2020 Basically I see you asking a 'Why?" question.  Those can be the most difficult to answer.  Why do I need to do something special for this common task?  An aspect behind that question is that different people see this task differently.  To the 'taxpayer' such a transfer is income because the IRS taxes it as income.  To others, it is not income at all; it is just moving cash from one pocket (the IRA) to another (the checking account).  Then Quicken comes in and tries to be all things for all users and does some reports one way and other reports a different way.  What might be a common task does not have a common presentation.  

The tax attribute line is geared toward the IRS perspective.  By making sure the assignment is correct, when various tax reports are used, those reports will pick up those transfers and include the values as income.  (I am hoping I am right that the proper distinction is made between a transfer from a Roth IRA versus from a traditional IRA which becomes another consideration.  That is, the Roth IRA tax attribute would not be assigned the same as the attribute for the traditional IRA.)

... it doesn't show up as "income" unless I include all transfers in reporting.

That line to me suggests you are looking at 'other' (non-tax) reports.  Can you be more specific about what reports?  Those are (in my opinion) more geared to the crowd that does not expect such transfers to show as income leading to the adjustments you mention.            

J_Mike

Boatnmaniac said:

@tlb2020 - To answer your second question:  I do not know why the instructions say that you need to set the tax attribute of the IRA account.  Maybe it is an instruction from many years ago...... 

Yes, this does date from many years ago. I retired 20 years ago and started taking distributions.
At that time, retirement accounts were simply set up as tax deferred brokerage accounts. IRA & 401k (etc.) did not yet exist in Quicken.
My retirement accounts are still set up as tax deferred brokerage accounts. IWhen the IRA acct was introduced, I jumped on the band-wagon and converted. There were some early bugs and In frustration I went through the laborious process of converting back to tax deferred brokerage accounts - copy/paste one transaction at a time. Never tried converting again.

Boatnmaniac

J_Mike said:

Boatnmaniac said:

@tlb2020 - To answer your second question:  I do not know why the instructions say that you need to set the tax attribute of the IRA account.  Maybe it is an instruction from many years ago...... 

Yes, this does date from many years ago. I retired 20 years ago and started taking distributions.
At that time, retirement accounts were simply set up as tax deferred brokerage accounts. IRA & 401k (etc.) did not yet exist in Quicken.
My retirement accounts are still set up as tax deferred brokerage accounts. IWhen the IRA acct was introduced, I jumped on the band-wagon and converted. There were some early bugs and In frustration I went through the laborious process of converting back to tax deferred brokerage accounts - copy/paste one transaction at a time. Never tried converting again.

Thanks for that tidbit of information.  It makes sense now.

NotACPA

See my discussion here: https://community.quicken.com/discussion/7893783/401k-withdrawl-tax#latest
re: tax withholding on an IRA/401k distribution.

Chris_QPW

Personally I have never been a fan of the "select tax line in transfer out" kind of option.
First off it is a "hidden" operation, just like contributions to 401K accounts.  On one hand all through Quicken it is stated by the help and by long time users that you can't "categorize" transfers.  And that for the most part the tax lines are set on categories.  So these hidden operations tend to look like they violate these rules.  But even if they don't they are "hidden" and severely limited.  What if one wants to transfer money out one IRA account to another?

I ran into exactly that problem, in one year I wanted to convert some funds to a Roth IRA from a Traditional IRA account, and also transfer from funds from that Traditional IRA to another Traditional IRA.  If I set that tax line then it certainly wouldn't handle both cases.  The same kind of thing comes up for people that want to have a transfer in their budget.  They better make sure that that any such transfer is going to only have "one purpose".

Then when you throw in the fact that in a tax deferred account you can't even record tax events, I have always felt that the use of a split in the receiving checking account is the way to go.

Boatnmaniac

Chris_QPW said:

....What if one wants to transfer money out one IRA account to another?

I ran into exactly that problem, in one year I wanted to convert some funds to a Roth IRA from a Traditional IRA account, and also transfer from funds from that Traditional IRA to another Traditional IRA.  If I set that tax line then it certainly wouldn't handle both cases.  The same kind of thing comes up for people that want to have a transfer in their budget.  They better make sure that that any such transfer is going to only have "one purpose".

I consolidated several IRAs at Fidelity with WithdrwX transactions back in 2018 and Quicken treated them as non-taxable events, even though I had the attributes set to capture transfers out of the IRAs to be taxable distributions.  None of those consolidations showed up in Tax Schedule, Tax Summary or in Tax Planner.  So, this worked as it should because Fidelity also treated them as non-taxable events and I never got a 1099 form  nor Form 5498 for them.  There must be something in the code that tells Quicken to not treat a transfer out of an IRA as a taxable event if the receiving account is also an IRA.  So far, so good.

Now, transferring between IRAs at different brokerages will generate a taxable event at both the sending and receiving brokerages and the sending brokerage will provide you with a 1099-R form and the receiving brokerage will will provide you with a Form 5498 showing a contribution to an IRA so the two will cancel each other out in your tax return.  This is a situation, perhaps, where Quicken should be capturing the transfer in the tax reports and Tax Planner so it matches the tax forms received from the brokerages but it does not.  Still, the net effect in this scenario, too, is that they cancel each other out so Tax Planner results will still be accurate.

Just to reconfirm that my memory from 2018 about all this is correct, I tested it out and got the same results.

I can't speak to the budget aspect of this since I haven't tested that out.

Chris_QPW

In another thread (that started as a Mac thread):
https://community.quicken.com/discussion/7894494/category-for-ira-distributions

This same subject came up and while looking at it, and I did see one thing that Quicken doesn't handle correctly when using the tax line approach.

If you transfer from a Traditional IRA to a Roth IRA Quicken will not report it as a taxable event.  It treats it as if you were transferring between two Traditional IRA (or 401K/403b accounts).  And of course this is a taxable event.

Chris_QPW

BTW not to long ago I learned about something that Quicken Windows can do that I never thought was possible.  I always thought it is you assign tax lines to categories which are in turn assigned to transactions.

It turns out that you can assign a tax line to any transaction you like, including transfers.
Right click on the transaction and you can select Tax line item assignments.

Chris_QPW

I might add that now that I know that the category and the tax line can be set separately, I no longer think this is any kind of violation of accounting practices.  The tax line is just an attribute put on transaction to allow including in reports or such.  It really isn't much different than say filtering a report based on something in a memo.

Boatnmaniac

Chris_QPW said:

In another thread (that started as a Mac thread):
https://community.quicken.com/discussion/7894494/category-for-ira-distributions

This same subject came up and while looking at it, and I did see one thing that Quicken doesn't handle correctly when using the tax line approach.

If you transfer from a Traditional IRA to a Roth IRA Quicken will not report it as a taxable event.  It treats it as if you were transferring between two Traditional IRA (or 401K/403b accounts).  And of course this is a taxable event.

(Edited to cross out incorrect information.)

I noticed this same thing this last Dec when I did two Roth IRA conversions.  I think it is probably because Roth IRAs are identified as "Tax deferred" on the General tab of Account Details.  It would be better for Quicken to identify them as "Tax exempt" instead of "Tax deferred" but that is not an available option.

What I did to get the transactions properly captured in Tax Planner and tax reports was to transfer the dollars into a dummy taxable cash account causing them to be captured as IRA distributions.  From there I then expensed the withheld income tax and transferred the remaining balance into the Roth IRA.

A bigger issue I just noticed is that Quicken treats distributions from Roth IRAs as taxable events which should not be the case (provided they are qualified and not early distributions).  What probably causes that is that the Tax Schedule on the General tab of Account Details tor Roth IRAs defaults to "Transfers out: 1099-R:Total gross distrib.".  Because of this,Tax Planner and the tax reports pick up Roth IRA distributions as taxable.

Roth IRA distributions are reported on 1099-R forms but they are identified as such in Box 7 by Distribution Code B (and therefore non-taxable).  However the Tax Schedule drop down does not have an option (at least not from what I saw) for Roth IRA distributions.   In my mind, this is a bug that should be fixed since the way it is set up now will cause Quicken to wrongly report Roth IRA distributions as taxable income.

The workaround for this is to remove the Tax Schedule selection for Transfers Out entirely.

Rocket J Squirrel

Boatnmaniac said:

A bigger issue I just noticed is that Quicken treats distributions from Roth IRAs as taxable events which should not be the case (provided they are qualified and not early distributions).  What probably causes that is that the Tax Schedule on the General tab of Account Details tor Roth IRAs defaults to "Transfers out: 1099-R:Total gross distrib.".  Because of this,Tax Planner and the tax reports pick up Roth IRA distributions as taxable.

 

The workaround for this is to remove the Tax Schedule selection for Transfers Out entirely.

Tax Planner does not use 1099-R:Total gross distrib at all. It uses 1099-R:Total taxable distrib.

A workaround for a non-taxable withdrawal from a normally taxable IRA is to not make it a transfer in Quicken. Use a categorized withdrawal in one account and a deposit in another.

Boatnmaniac

Rocket J Squirrel said:

Tax Planner does not use 1099-R:Total gross distrib at all. It uses 1099-R:Total taxable distrib.

Regarding "Tax Planner does not use 1099-R:Total gross distribution at all.  It uses 1099-R:Total taxable distrib.":  Yes, I know that is how it has been but I found in both a test file and my main file that the Total gross distribution was being captured in Tax Planner because the transactions were showing up there and impacting the tax calculation accordingly.   I had mistakenly assumed at that time that Quicken made a change recently and started using it.  Yeah, I know that's crazy thinking but that's what sometimes happens to me when I do troubleshooting when I've not had enough sleep.  Anyway, what I should have done was checked the tax forms associations in Tax Planner, instead, and I would have seen that nothing changed with regard to this.

So why did my test file and main file include the Roth IRA distributions in Tax Planner's "Other Income"?  Since it was happening in 2 separate files, I decided to uninstall and reinstall Quicken.  That resolved the problem.  The Roth IRA withdrawals no longer show up as "Other Income" in Tax Planner, they still show up as 1099-R income in the Tax Schedule report as gross distributions (not taxable distributions) and they still show up in the Tax Summary report as Transfers.  So, all is good now.  I've edited my previous post to reflect this.