Lifetime Planner - Roth IRAs

Unless I'm missing something, I wish Quicken would develop further definition of retirement assets and properly categorize Roth IRAs within the lifetime planner. Our only options of categorizing such is tax deferred- yes or no. If no is selected it's treated as a taxable investment in the Lifetime Planner. If yes is selected then it becomes a basis for tax deferred withdrawals along with subsequent taxation. Considering there are many users who likely have substantial tax free Roth assets I would find this a beneficial upgrade.

Comments

  • Scooterlam
    Scooterlam SuperUser, Windows Beta Beta
    edited August 2021
    At one point there was an Idea post requesting definition of ROTH accounts in LTP.  Looking back at this thread, https://community.quicken.com/discussion/comment/19769474#Comment_19769474 ,it appears that the ROTH Idea post was "broken" when Quicken moved from the prior forum software....I'll see if a moderator can help re-link that post and report back.  

    In addition to the refinement you stated,  I think that defining ROTH accounts in LTP can open up new (future) features around TIRA to ROTH conversion scenario planning, a popular topic for competitive financial planners. 


  • Chris_QPW
    Chris_QPW Member ✭✭✭✭
    I haven't checked this out in a while, but from what I remember Quicken's Lifetime Planner does treat Roth IRAs differently than Traditional IRAs.  The account has to be created as an Roth IRA though.

    As it decides when to start taking out funds differently, and it doesn't apply the Tax Rate to them.
    My only complaint in this area is that they use a set rules on which kind to withdraw from first, which most likely will not line up with the way I will do it.
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  • Chris_QPW
    Chris_QPW Member ✭✭✭✭
    I just took a look at the link that @Scooterlam provided and I thought I might add some insight into the fact that the Roth IRAs are stated as tax deferred.  To be accurate they really should have another category of "tax account type", but it seems that they just took the easy way out when Roth IRA were first created.

    Tax Deferred for a Roth IRA works just fine in Quicken because first any transaction that would have generated a tax event in a normal brokerage will not in a Tax Deferred account and that is correct for both types of IRA for that matter other account types like 401Ks.  The only difference comes at the time you withdraw the money.  In the regular use like in the Tax Planner and such it is the tax line assignment that controls that, or the user can handle it as a split transaction in a taxable account.  As for the Lifetime Planner it just has to look and see if it is a Roth IRA and switch its behavior.
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  • Scooterlam
    Scooterlam SuperUser, Windows Beta Beta
    edited August 2021
    I was interested in having another look at this after rereading the OP and my older post linked above.... the question....

    Does Quicken LTP model ROTH IRA account withdrawals correctly (tax handling) despite the lack of distinction between ROTH and T_IRA account types in the  Account Details dialog and Plan Summary tables?  

    • What I found is that ROTH withdrawals are correctly taxed (0%), provided that the ROTH account is setup correctly BOTH when creating the account (Image 2) and when setting the tax attribute in the Account Detail dialog (Image 3).
    • Also, when setup correctly,  ROTH IRAs withdrawals are not subject to RMD, as the Tax Deferred attribute = Yes might imply.

    Note: I did not test any rules around withdrawals prior to 59.5 or within 5 years of creating an account.


    @Bruce Anderson   For sure, I think that it would be very helpful for Quicken Product team to break-out ROTH vs Trad. IRAs in the plan summary tables - treat them, as @Chris_QPW states, different "tax account types".   It confusing and "confidence limiting" to lump IRA and ROTH IRA together as "tax deferred", when they are not.


    So...To check my assertion....I tested 2 cases, in an isolated, ROTH ONLY LTP plan (image 1).   

    Case 1. An all cash portfolio (no capital gains), to see if withdrawals were taxed.  They were not.

    Case 2. A mixed portfolio of cash and equity (with substantial capital gains) to see if withdrawals were taxed.  They were not.

    Note:  There were 2 similar cases where I set the ROTH tax deferred attribute to "No", which caused LTP to tax withdrawals.    I haven't resolved the tax handling of those cases yet.  For sure, can be a rabbit hole.


    Tell me / show me if your testing results in something different than what I concluded.




    Image 1 - ROTH IRA withdrawal tax handling - All Cash & Mixed Portfolios



    Image 2 - Ensure that the ROTH account is designated correctly when creating it.  I cannot find that there is a way to correct this after the account is setup.  




    Image 3 - Ensure that the Tax deferred attribute is set to "Yes"



  • Scooterlam
    Scooterlam SuperUser, Windows Beta Beta
    edited August 2021
    In my prior post, I did not test if taxes and penalties are applied when taking "early" withdrawals from a ROTH IRA, in Lifetime Planner.   So going further....

    how are EARLY withdrawals from a ROTH IRA treated in Quicken LTP?

    As a reminder, image 1 shows a brief summary on how the IRS would handle ROTH IRA withdrawals.  By "early", I mean withdrawals <59.5 years and/or within the 5 year account funding window. 

    Assuming that the ROTH IRA is correctly setup in Quicken, BOTH when created and in the Account details:
    • I found there is NO penalty applied in LTP when taking an early (<59.5 yo) distribution from a ROTH IRA.  Image 2.   Note: This is a different behavior from a T_IRA where Quicken LTP does apply an early withdrawal penalty.  Image 3. 
    • Of the 4 "rules" in Image 1, only the first is modelled in Quicken LTP, with the implicit assumption made that the date of first contribution into the ROTH is > 5 years ago.   So, Quicken is only modelling the "normal" flow and not the "exception" flows triggered by account holder age or account age.  
    So, as of today, IMO, ROTH IRA modeling in LTP does a reasonable job for the "normal flow" ...BUT...it is not transparent (plan summary tables) and could do better in terms of applying early withdrawal penalties (think of loss of portfolio value over a 20-40 year horizon - could be substantial).


    So, near-term / long-term...

                                       What can be improved in LTP for ROTH IRA Account types?


    1.  Break-out ROTH IRA related Income, Expenses and Portfolio Values lines in the Plan Summary Tables.  


    2.  Implement an early withdrawal penalty (<59.5 years) and tax, consistent with T_IRA accounts.

    3.  For future consideration, expand the "exception flows" in the LTP model using existing data
    (Age of user is explicit and Age of first deposit can be derived from the register data).


    Tell me / show me if your testing results in something different than what I concluded.


    Image 1 - ROTH IRA Withdrawal Rules:




    Image 2 - LTP Plan Summary for a ROTH ONLY (No Penalty)




    Image 3 - LTP Plan Summary for a T_IRA ONLY (Penalty)





  • Scooterlam
    Scooterlam SuperUser, Windows Beta Beta
    edited August 2021

    FWIW, the R35.23 update, pushed out in August 2021, now allows for correction of account types that were setup wrong or as a result of a conversion.   

    I've tested this T-IRA to ROTH IRA conversion (and vise versa) feature in Lifetime Planner and it works as expected.     I wanted to document for others that might come across this thread in the future.  



    Special Instructions here:  https://www.quicken.com/support/roth-ira-conversion


  • Scooterlam
    Scooterlam SuperUser, Windows Beta Beta
    I created an IDEA post that builds upon the analysis and improvement suggestions in this thread.   Please have a look and vote if you would like to see ROTH IRAs more fully modelled and displayed in Lifetime Planner

    https://community.quicken.com/discussion/7898294/lifetime-planner-idea-improve-how-roth-iras-are-displayed-and-modelled-in-ltp#latest
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