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account tax schedule - for Trad-IRA to Roth IRA Conversions

merdahl

When I change the tax schedule for an account, does that change take place from that point on or are all transactions already in the account changed

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Accepted answers

Rocket J Squirrel

I have a simple method that works for me. It is not intuitively obvious. I like it because no dummy account is needed.

As expected, the "Transfers Out" tax attribute of the trad IRA account must be "1099-R:Total IRA taxable distrib." The "Transfers In" attribute of the receiving account is not material when using this method.

The key is not to make the transfer out from the IRA. The key is to make the transfer in at the receiving account as a Deposit.

In other words, I go to my taxable brokerage account and enter a Deposit. As the Category for the deposit, I use the IRA account, as in [Rocket's IRA].

This causes a Cash Transferred Out of Account (WithdrwX) to appear in the IRA, and then it correctly appears in the tax reports and Tax Planner as a taxable distribution from the IRA.

I consider it a (very old) Quicken bug that this doesn't operate the intuitive way, namely a transfer out originating in the IRA.

I don't have taxes withheld from the distribution because I pay quarterly estimates, so I don't have to bother with a split transaction or extra transactions.

Transferring intact assets "in kind" won't work. You should sell the assets in the IRA, transfer (deposit) the cash as above, and buy the assets in the receiving account. This properly steps up the cost basis of the "transferred" shares in Quicken.

All comments

Sherlock

Changes to the tax schedules for the transfers to and from an account register should affect all to and from transfers in the account that do not have an explicit tax-line item assigned to them.

Boatnmaniac

It affects all transactions...past, present and future.

If you want a tax schedule change to affect only those transaction from today going forward you might want to consider setting up a new account with the new tax schedule for those transactions. Then leave the tax schedule unchanged in the current account for the historical transactions.

merdahl

It looks like Roth conversions and tIRA distributions are going to be complicated. Been using quicken for 25+ years. This old guy did not see that coming.

Boatnmaniac

I've been taking IRA distributions for over 6 yrs now and also have done Roth conversions. I don't find them particularly difficult. But I did need to start thinking a little bit differently about how to do them. Once I got through that hurdle it became a rather routine matter to manage.

What is it that you want to accomplish and what are your concerns about that? Maybe we can help you get there without causing too much "pain" for you.

merdahl

I want to perform the following 2 actions in Quicken Deluxe:

1) Transfer assets in kind from tIRA to a Roth. This should be a taxable event. So far I have not been successful getting those transactions to show up in my tax schedule report. Also, the cost basis is maintained thru the transfer so my amount transferred is incorrect. Should be based on the present value.

2) Transfer cash from tIRA to taxable brokerage account. This should also be a taxable event but does not show up on my tax summary. If I transfer the cash to my checking account instead it seems to work properly.

My tIRA account set up.

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Ps56k2

This topic comes up every so often, so there are previous threads and discussions...

Here is one sampling -
https://community.quicken.com/discussion/comment/20050949#Comment_20050949

[EDIT] - I have also updated the topic title to better reflect the actual Q&A

Sherlock

merdahl said:

I want to perform the following 2 actions in Quicken Deluxe:

1) Transfer assets in kind from tIRA to a Roth. This should be a taxable event. So far I have not been successful getting those transactions to show up in my tax schedule report. Also, the cost basis is maintained thru the transfer so my amount transferred is incorrect. Should be based on the present value.

2) Transfer cash from tIRA to taxable brokerage account. This should also be a taxable event but does not show up on my tax summary. If I transfer the cash to my checking account instead it seems to work properly.

My tIRA account set up.

1) The taxable amount is the market value reduced by any taxed contribution or gain/loss. You may use a balancing split transaction in any non-tax deferred account to record the event.

2) The taxable event should appear give the setup information you provided in the Tax Schedule report under 1099-R assuming you're not filtering out the transaction in the non-tax deferred brokerage account.

merdahl

How would I be filtering out the transaction in the non-tax deferred brokerage account?

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Sherlock

merdahl said:

How would I be filtering out the transaction in the non-tax deferred brokerage account?

There are so many ways you may filter transactions out of reports. For example, you could exclude the account, the category, transfers, etc.: open the report and press Alt + C

merdahl

I am aware of those settings. The only way I can get the transaction to show up as a 1099R taxable event is to change the settings on my brokerage account as below. Then the transaction I am interested in shows up along with a lot of others I don't want. The brokerage account is very active in/out. Only some will be taxable 1099R events.

image.png

Boatnmaniac

I suggest you keep to the original default tax schedules for the accounts. As you've already noted there can be unexpected/undesired things that can happen when changing the default tax schedules.

One of the things I have found to be disappointing in Quicken is that capturing the tax event data in distributions from IRAs, when the distribution is made to an account that is not a taxable Spending account (Checking, Savings, Cash), is not as straightforward as it could and should be. But there is a relatively simple workaround that should work well for both your scenarios.

FOR YOUR ROTH:

1) Set up a dummy manual taxable checking or cash account. I called one that I set up “Cash_IRA Distributions”.

2) In the Cash account enter a transaction for the net after tax dollar amount that you want transferred into your Roth.

3) Split the category:

1st line of the split: Enter a transfer from the IRA for the gross before tax distribution as a positive number.
2nd line of the split: Enter the Fed tax withholding category with the tax dollars as a negative number.
3rd line of the split (if needed): Enter the State tax withholding category with the tax dollars as a negative number.

4) The total of the split category should now match the net amount you entered for the transaction. If it doesn’t make corrections as needed.

5) Enter the transaction. This manual account should now show the net dollar value of the transaction just entered.

6) Enter another transaction to transfer that manual account net dollar value to your Roth account.

FOR YOUR TAXABLE BROKERAGE: Repeat the steps above replacing your Brokerage account for your Roth account in step 6. You can use the same manual account for this. However, if you have your brokerage account set up so that cash is kept in a separate checking account you can (if desired) enter the split category transaction steps (2-5) from within that separate checking account.

Regarding the Fed and State tax withholding categories: Make sure they are associated with the appropriate 1099R tax line items.

Following these steps should now properly capture your gross taxable distributions and your tax withholding subtractions in the Tax Planner tool and in the Tax Schedule and Tax Summary reports.

Let me know if this helped or if you have any questions.

Rocket J Squirrel

I have a simple method that works for me. It is not intuitively obvious. I like it because no dummy account is needed.

The key is not to make the transfer out from the IRA. The key is to make the transfer in at the receiving account as a Deposit.

In other words, I go to my taxable brokerage account and enter a Deposit. As the Category for the deposit, I use the IRA account, as in [Rocket's IRA].

This causes a Cash Transferred Out of Account (WithdrwX) to appear in the IRA, and then it correctly appears in the tax reports and Tax Planner as a taxable distribution from the IRA.

I consider it a (very old) Quicken bug that this doesn't operate the intuitive way, namely a transfer out originating in the IRA.

I don't have taxes withheld from the distribution because I pay quarterly estimates, so I don't have to bother with a split transaction or extra transactions.

merdahl

Mr. Maniac,
I had already resigned myself to having to use dummy account(s). Thanks for the details on this. I see there has been some recent improvements in this area since you can now setup an IRA account to be either traditional or Roth. This appears to be a work in process, any idea on planned roll outs of additional features?
As I start this adventure, I am planning on making quarterly estimated tax payments instead of withholding from each transaction. At least until it becomes burdensome. At this point my income will be low and I will be doing the ACA/Roth conversion thing for a while.

merdahl

Mr. Squirrel,

I like that work around for the distribution from tIRA to brokerage account, thank you. I can only imagine how you came across that method.
For the Roth conversions, I can do the actual transfers in kind with my broker but enter them as you describe with a sale, cash transfer and purchase. If I do the deposit into my Roth using the same method, all is well. Thanks again.

Rocket J Squirrel

merdahl said:
For the Roth conversions, I can do the actual transfers in kind with my broker but enter them as you describe with a sale, cash transfer and purchase.

Exactly! We gently warp reality in Quicken, but the result is correct.

Sherlock

merdahl said:

I am aware of those settings. The only way I can get the transaction to show up as a 1099R taxable event is to change the settings on my brokerage account as below. Then the transaction I am interested in shows up along with a lot of others I don't want. The brokerage account is very active in/out. Only some will be taxable 1099R events.

You should not be setting a tax schedule for the transfer into the non-tax deferred brokerage account. The 1099-R:Total IRA taxable distrib. tax schedule for the transfer out of the tIRA account should be sufficient.

Frankx

Hi @merdahl,

You said:

I want to perform the following 2 actions in Quicken Deluxe:

1) Transfer assets in kind from tIRA to a Roth. This should be a taxable event. So far I have not been successful getting those transactions to show up in my tax schedule report. Also, the cost basis is maintained thru the transfer so my amount transferred is incorrect. Should be based on the present value.

2) Transfer cash from tIRA to taxable brokerage account. This should also be a taxable event but does not show up on my tax summary. If I transfer the cash to my checking account instead it seems to work properly.

For #1) above:

Even though you are transferring the assets in-kind - you will need to enter a "faux" sale transaction in Quicken to effect the tax reporting on a 1099R (which you seem to have already setup). Any other type of transfer will not capture the tax reporting you seek.

The "faux" sale transaction you record in the Quicken tIRA register should be crafted using the market price(s) on the date the transfer is made. Once you've effected the physical transfer between financial institutions (or within a financial institution if you are keeping the account there), in your new Quicken Roth account register, you'll need to enter "Buy" transactions for each investment holding at the same market prices you used for the "faux" sale transaction.

For #2) above:

If you've properly setup the Tax Schedule Information for the existing tIRA account so that the "Transfers out:" drop-down is set to "1099-R:Total IRA taxable distrib." so that transfers out are taxable, I don't understand why it doesn't seem to be correctly reporting the taxable income for you. However, if you can achieve the correct result (i.e. the proper taxable income reporting) by using your checking account, then I suggest that you do so.

Let me know if you have any followups.

Frankx

Boatnmaniac

The procedure spelled out in my last post specifically addresses issues I have encountered over the years getting taxable distributions made from IRA accounts to be consistently and uniformly captured in Tax Planner and in the Tax Schedule and Tax Summary reports when the distributions were made to any kind of investment account, including taxable brokerages and Roth IRAs.

From what I have been able to ascertain in many different test files and in my primary files, making IRA distributions to a taxable Spending account (checking, savings, cash and in taxable brokerage accounts where the cash is shown in a checking account) is the only way I have found that consistently and uniformly captures all the tax data correctly in all of Tax Planner, Tax Schedule and Tax Summary.

merdahl

Mr. Maniac,

I agree with your statements above. I also believe this to be a problem that has been around for years, I just stumbled across it due to my recent retirement. I dug and dug on the topic and until you came around I was going to create a dummy spending account. Your approach is much more palatable, thank you.

Any insight on SS or pension income?

BTW, how do you keep track of all the money you throw in that hole in the water called a boat? If you are a youtuber check out sailing doodles.

Boatnmaniac

merdahl said:

Mr. Maniac,

I agree with your statements above. I also believe this to be a problem that has been around for years, I just stumbled across it due to my recent retirement. I dug and dug on the topic and until you came around I was going to create a dummy spending account. Your approach is much more palatable, thank you.

Any insight on SS or pension income?

BTW, how do you keep track of all the money you throw in that hole in the water called a boat? If you are a youtuber check out sailing doodles.

Yes, I think that Quicken never put in place the correct coding to fully manage IRA distributions correctly when it comes to the tax planning and reporting tools. But that's just the tip of the iceberg when it comes to needed improvements in the tax planning and reporting tools. Unfortunately, now that Quicken is no longer owned by Intuit I'm not holding out a lot of hope that the needed improvements will be made any time soon.

SS and pension incomes are much more straightforward to manage. In both cases I set up recurring Income Reminders with split categories similar to what I spelled out above for the IRA distributions, but no dummy accounts are needed...just have the income deposited directly into your checking or savings account, whichever is most appropriate for you.

1) Enter the net deposit amount for the transaction total.

2) Split the category:

1st line of the split: Enter the gross SS or pension benefit as a positive number.
Use additional lines in the split for deductions (negative numbers) for things like, Medicare premium deductions and, if appropriate, withheld income tax.

I set up my SS income reminder to automatically enter into my checking account on the 2nd Wed of each month and for 3 pension income reminders to automatically enter on the last day of each month. Works like a charm with no hands on assistance needed (except once a year to adjust the reminders for COLA, Medicare and tax withholding changes) but I do need to remember that the actual pension deposit date will be a little different when the last day of the month falls on a weekend or holiday. As my wife likes to say, "Easy, breezy!".

Regarding the boat: Most people who have never owned a boat think a boat is a thing. But boat owners know that is not true and that it instead is an acronym meaning "Break Out Another Thousand".

I'll be sure to check out sailing doodles on Youtube.

Chris_QPW

Boatnmaniac said:

Unfortunately, now that Quicken is no longer owned by Intuit I'm not holding out a lot of hope that the needed improvements will be made any time soon.

Personally I think it always it was a "misconception" that Quicken being owned by Intuit would somehow infer that the tax sections of Quicken would be done by tax experts (or be able to talk to the tax experts).

Intuit had plenty of time to change Quicken for most of this and didn't. I have worked for big corporations and in a lot of cases the different departments hardly ever talk to each other. They might as well be in different companies.

And as for the tax planner, that was created when "the Desktop as a web page" was raging, and it is done in Active X to generate those web pages. I'm sure it is a royal pain to work on.

Boatnmaniac

Chris_QPW said:

Boatnmaniac said:

Unfortunately, now that Quicken is no longer owned by Intuit I'm not holding out a lot of hope that the needed improvements will be made any time soon.

Personally I think it always it was a "misconception" that Quicken being owned by Intuit would somehow infer that the tax sections of Quicken would be done by tax experts (or be able to talk to the tax experts).

Intuit had plenty of time to change Quicken for most of this and didn't. I have worked for big corporations and in a lot of cases the different departments hardly ever talk to each other. They might as well be in different companies.

And as for the tax planner, that was created when "the Desktop as a web page" was raging, and it is done in Active X to generate those web pages. I'm sure it is a royal pain to work on.

I really wasn't thinking so much that if Intuit had still owned Quicken the tax sections would get fixed quickly. It just that with Intuit not being in the picture I think the likelihood of these things getting fixed becomes an even more remote possibility.

Chris_QPW

@Boatnmaniac so now it is infinity + one.