ira distribution

lgl

I have a simple withdraw for ira distribution 5k. institution withheld taxes of2k. i cant figure out one action to do. all i can figure is 2. one to transfer amount out of ira and the other in checking to say i made the tax withholdings. is this right?

jacobs

Some questions: is this withdrawal a regular distribution from an IRA, like a RMD or other withdrawal after age 59.5? That is, is this a taxable event?

The basic way to do the withdrawal would be

• A sell transaction(s) in the IRA account for whatever security(ies) were liquidating
• A transaction in the checking (or savings) account receiving the proceed of the withdrawal in the amount deposited, in this case, $3,000
• The $3,000 transaction in the checking account will have a split: (1) a transfer from the IRA account for $5,000 and (2) $2,000 categorized to Taxes:Federal Tax

That will get all your funds in the right places.

But if this is a regular IRA withdrawal, there's still one missing piece: making the IRA withdrawal show up income, since it's a taxable event. You've recorded a transfer from the IRA, but a transfer from one asset (your IRA account) to another asset (your checking account) isn't income. (There's a way to add a category to a transfer, but I don't recommend it because it violates the rules of accounting, and the Quicken developers have said they will prevent categories on transfers in the future.)

Quicken Mac surprisingly doesn't have a built in way to handle this, so here's the work around. Add two more split lines to your existing split transaction: (3) $5,000 categorized to Personal Income:Taxable IRA Withdrawal and (4) –$5,000 categorized to Adjustment. The first of these makes the $5,000 IRA withdrawal into taxable income, as you need. But there has to be an opposite transaction to keep your main deposit transaction remain $3,000, so the negative $5,000 to the special category Adjustment is the trick. Adjustment is a category which does not appear in any reports, so it makes the negative $5,000 invisible in Quicken reports.

This four-split transaction does everything you need: deposits the $3,000 in your checking account, records the $2,000 in taxes paid, and records the $5,000 IRA withdrawal as taxable income.
   

lgl

thank you!

jacobs

Some questions: is this withdrawal a regular distribution from an IRA, like a RMD or other withdrawal after age 59.5? That is, is this a taxable event?

The basic way to do the withdrawal would be

• A sell transaction(s) in the IRA account for whatever security(ies) were liquidating
• A transaction in the checking (or savings) account receiving the proceed of the withdrawal in the amount deposited, in this case, $3,000
• The $3,000 transaction in the checking account will have a split: (1) a transfer from the IRA account for $5,000 and (2) $2,000 categorized to Taxes:Federal Tax

That will get all your funds in the right places.

But if this is a regular IRA withdrawal, there's still one missing piece: making the IRA withdrawal show up income, since it's a taxable event. You've recorded a transfer from the IRA, but a transfer from one asset (your IRA account) to another asset (your checking account) isn't income. (There's a way to add a category to a transfer, but I don't recommend it because it violates the rules of accounting, and the Quicken developers have said they will prevent categories on transfers in the future.)

Quicken Mac surprisingly doesn't have a built in way to handle this, so here's the work around. Add two more split lines to your existing split transaction: (3) $5,000 categorized to Personal Income:Taxable IRA Withdrawal and (4) –$5,000 categorized to Adjustment. The first of these makes the $5,000 IRA withdrawal into taxable income, as you need. But there has to be an opposite transaction to keep your main deposit transaction remain $3,000, so the negative $5,000 to the special category Adjustment is the trick. Adjustment is a category which does not appear in any reports, so it makes the negative $5,000 invisible in Quicken reports.

This four-split transaction does everything you need: deposits the $3,000 in your checking account, records the $2,000 in taxes paid, and records the $5,000 IRA withdrawal as taxable income.
   

lgl

it's so complicated. quicken needs to make this simpler. i'm only transferring cash out of IRA and yes it is a taxable event. i don't need to sell stock so do i just skip step 1? thank you i'll try it

jacobs

@lgl  Yes, if the money you moved from the IRA account to the checking account was already cash in the IRA account, then you just need the one transaction in your checking account with the split to perform the transfer and debit the tax category.

If you don't use Quicken's Tax Report in preparing taxes or tax planning, you can skip the extra two splits (numbers 3 and 4 in my post above) for recognizing the IRA withdrawal as taxable income; you'd just have two split lines, one for the transfer out of the IRA ($5k) and one for the tax withheld ($2k).

And yes, I think Quicken should provide an easier way to record the IRA withdrawal as taxable income rather than the two extra split lines (#3 and #4) I described; this is just the best workaround I know of until they do.

lgl

thank you!

mtimkovich

That process seems unnecessarily complicated. I enter a Transaction Type in the receiving account of "Payment/Deposit" and fill in the Split lines with "Personal Income: Taxable IRA withdrawal" (including the IRA account in the Transfer field), and use the relevant Tax categories for the rest of the Split lines. The total withdrawal amount is in the IRA and the correct tax transactions are in the receiving account.

jacobs

mtimkovich said:

That process seems unnecessarily complicated. I fill in the Split lines with "Personal Income: Taxable IRA withdrawal" (including the IRA account in the Transfer field)

And there's the rub! It's true that you can do this currently, but the ability to have a transfer transaction also have a category is something Quicken executives have said is going to be removed from the program. It violates the rules of accounting to have a transfer of funds between two assets also count as income. Quicken Mac currently allows this do to a quirk of its development from the former Quicken essentials, which didn't track investment transactions, but it's going to be barred going forward.

When? We don't know. What will the programmers do to existing transactions which have a transfer and a category? We don't know. So my reply is a "future-proofed" solution.