Should reinvested dividends in a tax-deferred account be showing on the Tax Summary report?

EmKay

This is something I've always manually worked around, but taxes are a big deal to me now as I will start drawing on my retirement investments soon (having retired in August).

I have a 403(b) account that was set up as tax-deferred.

When I run the tax summary report for the current year, _DivInc is reported as being on Schedule B.  If I relied on that as my only source of information as to what I should put on Schedule B, I would be reporting it as dividends - but it's not, in a tax-deferred account (right??).  They also show on the Tax Schedule report.

Should they show up in these reports if they're not, currently, taxable income?

Chris_QPW

When you get dividends in a tax deferred account they are still not taxable.  It isn't until you withdraw the money from the account that they become taxable.

From what I see on the tax reports the way they handle this is by default they do not select the tax deferred accounts, and as such don't report the dividends in those accounts.

EmKay

It's disappointing that tax-deferred accounts' interest is not recognized as "different" by Quicken, because when I run my tax reports, I run them wide open so as to not miss a thing.  I will continue to ignore them where appropriate, going forward.

Chris_QPW

[Mistaken in what the issue was]

Boatnmaniac

I agree that Quicken should be automatically screening out the data from tax deferred accounts so it does not get included in them. The default of these reports (to exclude the tax deferred accounts in the customizations) does this quite well.  But it also opens the door for loss of report accuracy and integrity by allowing users to select tax deferred accounts in the customizations. 

Ideally I think it would be best if Quicken were to totally disallow selection of tax deferred accounts in the customizations.  Or, at a minimum, to pop up a message when users attempt to add tax deferred accounts in the customization warning them that the integrity and accuracy of these two reports may be compromised by doing this.

The good news is that Quicken seems to do pretty well with properly screening out most tax deferred accounts data in Tax Planner.  The data that it does not screen out (like transfers out of the accounts) is properly accounted for.

Chris_QPW

I can see where a warning would be nice, but I don't think Quicken should remove the flexibility to show it either way.  After all if one size fit all this question wouldn't have come up at all.  And one can have two saved reports showing it both ways.

I also don't think a separate category for reinvested dividends in a deferred account would be the right way to go.

Right now basically for the most part, you have a generic investment account with a "attribute".  So basically most of the code doesn't know/care about the "type" of the account.  It is in everyone's best interest "specialize" the account in least possible way.  If all the reinvestment transactions in a certain account type are different category, if one finds that they have setup the type wrong then converting to the new type means altering many transactions (and hopefully there is a one to one conversion).  If all it is an attribute that things like the reports look at the actual account data doesn't have to change.  This means less work, less chance of bugs, ...

Note with the 401K and 403(b) accounts there are things that are "special" about them with the employer contributions and hidden tax accounts and such.  And yes those hidden specializations have caused problems in the past.  It is best to keep them to the minimum in my opinion.

q_lurker

@EmKay What others are telling you is that tax-deferred accounts are by default not included in off-the-shelf tax reports (Tax Schedule, Schedule B, Tax Summary, Capital Gains, etc.).

If you are running your reports "wide open" so as to not miss anything, you have likely opted to include ALL accounts.  Doing so DOES then include tax-deferred accounts in those reports.  

Solution:  Don't run your reports "wide open".

EmKay

As I return to making sure that Quicken has all my tax line categories correct, I'm still finding things to be confused about, on this topic.  If I contributed to my traditional IRA this year, I *want* those to show up on the tax report and, if I do some Roth conversions, I want those in my tax report - but I still don't want the _DivInc to show up, right?  Do I just have to work around this, and manually exclude the Div Income while including that particular tax-deferred account in the report?

Boatnmaniac

EmKay said:

As I return to making sure that Quicken has all my tax line categories correct, I'm still finding things to be confused about, on this topic.  If I contributed to my traditional IRA this year, I *want* those to show up on the tax report and, if I do some Roth conversions, I want those in my tax report - but I still don't want the _DivInc to show up, right?  Do I just have to work around this, and manually exclude the Div Income while including that particular tax-deferred account in the report?

(EDITED 11/29/2021:  Corrected comments are in italics.)

For making contributions to an IRA:

• Go to Account Details for the IRA account and check to make sure the Tax Schedule shows the following tax form associations are set up:
• IRA funding transactions originating from a Cash account (such as Checking, Savings or separate checking account for a taxable investment account), need to be simple transfer category transactions (where the category = [IRA Account]).
• IRA funding transactions originating from a taxable investment account in which the cash is held in the account and not in a separate checking account, need to be "Withdraw" transactions with the IRA account selected for the withdrawal transfer.  "Cash Transferred out of Account" transactions will not be captured in the Tax Reports.
• Transfers into the IRA, in order to be captured in the Tax Reports, need to originate from a Cash account, such as a checking account.  If you transfer from a taxable investment account it needs to be set up to Show cash in a checking account or the transfer will not be captured in the Tax Reports. 
  

For Roth IRA conversions, the process is similar to any other kind of IRA withdrawal:

• I find it works best to set up an Income Reminder (not Transfer Reminder) for a deposit to the Roth IRA.  The deposit amount is a positive number and is the net amount after withheld tax is accounted for.
• Split the category.
• 1st line of the split:  The category is a Transfer from the IRA.  The amount is a positive number and is the gross amount before tax is withheld.
• 2nd line of the split (if needed):  The category is _401FedWithheld (you might need to check the box to show hidden categories to be able to see and select this category).  The amount is a negative number.
• 3rd line of the split (if needed):  The category is _401StateWithheld (check the box to show hidden categories if needed).  The amount is a negative number.
  
• The total amount of the split categories needs to match the net deposit amount.
• Unfortunately, Quicken does not have a tax line item for the net conversion amount rolled over into the Roth IRA account.  To help me identify in the Tax Reports which IRA withdrawals are Roth IRA conversions I will enter a comment about it in the memo fields of each category in the split.
• Assign the tax line item to the _401FedWithheld category:  Category List > select the category (check the box to show hidden categories if needed) > on the right side in the "Action" column click on the button > click Edit > assign 1099-R:IRA federal tax withheld.
• Assign the tax line item to the _401StateWithheld category:  Category List > select the category (check the box to show hidden categories if needed) > on the right side in the "Action" column click on the button > click Edit > assign 1099-R:IRA state tax withheld.
• Enter the Reminder when appropriate and the IRA side of the distribution and withheld taxes will be captured in the Tax Reports and Tax Planner.

Regarding Tax Reports and DivInc:

• As noted above, do not include any tax deferred/tax exempt accounts in the Tax Reports. 
  
• If you do include them you will get data that you do not want in the tax reports, one of which is tax deferred/tax exempt DivInc.
• Not selecting the tax deferred/tax exempt accounts will not prevent transactions from being captured as long as the accounts have the correct Tax Schedule assigned and the categories have the correct Tax Line Items assigned.

I hope this helps.  Let me know if you have any questions.

Frankx

EmKay said:

It's disappointing that tax-deferred accounts' interest is not recognized as "different" by Quicken, because when I run my tax reports, I run them wide open so as to not miss a thing.  I will continue to ignore them where appropriate, going forward.

Hi @EmKay,

To be honest, it has been a number of years since I last setup one of these types (tax deferred) accounts in Quicken I didn't recall needing to adjust the settings for the Tax Summary Report.  However that is what Quicken requires, and once that slight adjustment (deselecting the account from the tax report(s) ) is made no further action would be required even, when you start to draw down from the account(s) because you'll be coding those as "taxable" income when you enter the withdrawal transactions (presumably through memorized transactions).

Typically the time frame for making contributions to and receiving periodic (non-taxable) income (such as dividends, interest, etc.) in a retirement account is much longer than the time frame for making taxable withdrawals from the account.  In addition, all withdrawals out of the account, if properly categorized when withdrawn, will appear on the Tax Summary Report even when the account is deselected from the report, therefore taxable income will be properly reported even where the account itself is deselected. So the problem seems to be the running of "wide open reports", which are not needed for tax purposes if you've correctly setup the accounts/reports in Quicken.

Frankx

Chris_QPW

Note, here is a comment that was sent to me:

On November 28, 2021, user @Boatnmaniac says:

 

"Transfers into the IRA, in order to be captured in the Tax Reports, need to originate from a Cash account, such as a checking account.  If you transfer from a taxable investment account it needs to be set up to Show cash in a checking account or the transfer will not be captured in the Tax Reports."

 

My test indicates otherwise.

 

I believe the key is to use a "Withdraw" transaction in the taxable investment account (not a "Cash transferred out of account" transaction).

 

When I do that (and the IRA account has the correct tax line item assigned to "Transfers In"), the taxable investment account contribution appears properly in the Tax Reports.

Boatnmaniac

Chris_QPW said:

Note, here is a comment that was sent to me:

On November 28, 2021, user @Boatnmaniac says:

 "Transfers into the IRA, in order to be captured in the Tax Reports, need to originate from a Cash account, such as a checking account.  If you transfer from a taxable investment account it needs to be set up to Show cash in a checking account or the transfer will not be captured in the Tax Reports."

 My test indicates otherwise.

 I believe the key is to use a "Withdraw" transaction in the taxable investment account (not a "Cash transferred out of account" transaction).

 When I do that (and the IRA account has the correct tax line item assigned to "Transfers In"), the taxable investment account contribution appears properly in the Tax Reports.

When I tested this with the cash held in the taxable account, I did not try doing a "Withdraw" transaction in my tests yesterday.  I recall from long ago some issues with "Withdraw" transactions not always being captured properly in Tax Reports (don't ask me what the specifics about this were...it was too long ago to remember) so I've just made it a habit to always use "Cash Transferred out of Account" transactions which is what I did in my tests.

I just redid my tests and here are the results:

TAXABLE INVESTMENT ACCOUNT CASH SHOWN IN THE INVESTMENT ACCOUNT:  Appears to correlate with the results of your test.

• "Cash Transferred out of Account" transactions with the transfer being made to [IRA Acct] shows as "XOut" transactions in the register:  They do not show up in the Tax Reports and are not properly recorded in Tax Planner (it captures the total value but does not capture the transactions details).
• "Withdraw" transactions with the transfer going to [IRA Acct] shows as "Withdraw" transactions in the register.  They do show up properly in the Tax Reports and in Tax Planner.
• Both types of transactions are [IRA Acct] transactions so why all of them aren't captured properly in the Tax Reports and Tax Planner leaves me scratching my head.
  

TAXABLE INVESTMENT ACCOUNT CASH SHOWN IN A SEPARATE CHECKING ACCOUNT:

• Changing the Investment account into one which has cash shown in a checking account coverts the "Withdraw/Transfer" transactions to simple transfer category transactions.  They are captured in the Tax Reports and Tax Planner.
• The "Cash Transferred out of Account" transactions become simple transfer category transactions.  They, too, are captured in the Tax Reports and Tax Planner.
• Entering a new simple transfer category transaction also is captured in the Tax Reports and Tax Planner.
• "Withdraw" nor "Cash Transferred our of Account" cash transactions in the investment account register are no longer available for selection.

Conclusions: 

• Based upon this feedback from @Chris_QPW and some additional testing I have corrected my last post.
• There have been many posts by people identifying various issues with how Quicken manages some retirement account transfer transactions requiring workarounds to get expected/desired results.  I think we've just identified another one.

Jim_Harman

I hope Quicken implements the improvements discussed in this Idea post soon.
https://community.quicken.com/discussion/7864626/improve-handling-of-ira-distributions-qcds-and-roth-conversions

It has 124 votes so far and is listed as "Under consideration"

Boatnmaniac

Jim_Harman said:

I hope Quicken implements the improvements discussed in this Idea post soon.
https://community.quicken.com/discussion/7864626/improve-handling-of-ira-distributions-qcds-and-roth-conversions

It has 124 votes so far and is listed as "Under consideration"

Wouldn't that be nice!