How should transfers of securities from a 401K Rollover IRA to a Roth IRA be recorded?

datajunkie

Fidelity downloads give me "Shares Removed" and "Shares Added" transactions. In the "Shares Added" I am provided a "Total Cost" entry in the Edit Box where I can enter the new cost basis, which is the value of the security at the time of the transfer. This is the taxable amount. But, in the "Shares Removed" Edit box I do not get that option. I did notice that in one of the "Shares Removed" edit boxes that upon accepting, I was provided an option to transfer shares, although not always and I am not sure what triggers this. I tried this on one security, but it transfers every buy transaction at the original cost basis, and not the taxable basis. Way too many transactions if you consider I was buying the securities from each paycheck when I was working for a living. The only way I can figure to do this is to sell the shares in the IRA account at the current price, transfer the funds to the Roth IRA account, and buy the shares back in the Roth account. Is there a better way within the Quicken system?

Jim_Harman

It sounds like this would properly be called a Roth conversion, and the amount converted is treated as a taxable distribution from the rollover IRA. Because capital gains are not a factor in deferred accounts, it would be simplest to record a Sell in the in the IRA and transfer the cash and buy the securities back in the new account as you describe.

But Quicken does not pick up the tax implications of transfers between tax deferred accounts. To get the taxes recorded properly, you should make the transfer in Quicken to one of your taxable accounts, then transfer the same amount to the Roth account, then Buy the securities in the Roth account. If you record these transactions all on the same day, your investment performance reporting will be correct, just be sure to include both the old and new accounts in the report.

If you would like Quicken to handle these transactions more smoothly, please review and vote on this Idea post
https://community.quicken.com/discussion/7864626/improve-handling-of-ira-distributions-qcds-and-roth-conversions/p1

Rocket J Squirrel

datajunkie said:

The only way I can figure to do this is to sell the shares in the IRA account at the current price, transfer the funds to the Roth IRA account, and buy the shares back in the Roth account. Is there a better way within the Quicken system?

No, this is the best way to handle this.

Jim_Harman said:

Quicken does not pick up the tax implications of transfers between tax deferred accounts. To get the taxes recorded properly, you should make the transfer in Quicken to one of your taxable accounts, then transfer the same amount to the Roth account, then Buy the securities in the Roth account.

This is unnecessary. I recently did this in real life and I did not need to involve a taxable account.

The key is to move the cash using a DEPOSIT in the receiving (Roth) account, with the "category" of the deposit the source (trad IRA) account, thus establishing a transfer. When I did this, Tax Planner picked up the amount properly as a taxable IRA distribution. If you try to enter the transfer as a withdrawal from the source account, Quicken indeed will fail to notice the tax consequences. Of course, your traditional IRA (or is it a 401k?) must have the proper tax line item set for transfers out, namely "1099-R:Total IRA taxable distrib."

q_lurker

I did notice that in one of the "Shares Removed" edit boxes that upon accepting, I was provided an option to transfer shares, although not always and I am not sure what triggers this. 

This is for a Shares Removed action initiated by the download from Fidelity, correct?  I suspect you got the option to "Specify Lots" for that specific security being transferred.  That would be the case if you transferred some but not all of your holdings in one security.  If all your shares in a specific security were being removed, you would not (should not) get that prompt.  

I tried this on one security, but it transfers every buy transaction at the original cost basis, and not the taxable basis. 

I think you are saying your tried a "Shares Transferred between accounts" action for one security.  That would generate an Add Shares in the receiving account for every lot of the security being transferred.  As Jim points out, it is likely that you can treat the shares arriving in the Roth account as a single lot that have a single associated cost.  I agree that his sequence is likely the way to go, which was also your final question.   


 

AC

Thank you all for your valuable input. It is greatly appreciated. I will go with Mr. Squirrel's suggestion, but this dialog explains a lot about the 'features' in the software.