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After tax and Roth 401K

raccah

I've read as many posts as I could find on this on the forum and they all seem to center on:
Quicken's lack of support
How to track a paycheck and matching for after tax when there is 0 pre-tax contribution
Downloading to a single account

I want to ask my questions slightly differently:
1. If my brokerage (Fidelity) tracks it as a single account, isn't it still a good idea to track it as 2 separate accounts in quicken? That way I can separate pre and after tax? How important is this?
2. I already work around the matching when I have a 0 pre-tax for true-up contributions late in the year by doing a direct MiscInc in the _401KEmployerContrib to the account outside the paycheck. Would this continue to work?
3. If I don't care about downloading transactions (I typically round up at the quarter level and do all the purchases/divs then manually), does this idea make more sense? To track pre-tax as contribution to a 401K tax free account and the after-tax as a contribution to a different account? What characteristics would I set on that account? Could I skip the Roth conversion and just consider it roth all along? I know there is no support for roth 401k, but whatever way to model it without a hop?

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Jim_Harman

1. Tracking in 2 accounts is difficult if you need to split reinvested dividends.

2. If you use 2 accounts, I wild make the second one a Roth IRA.

I think the best workaround for now is to choose different investments for the Roth part of the account. If tracking manually, that would work well with 2 accounts.

raccah

I called and my plan does not allow choosing different investments. I asked and they said I can "view details" on dividends in transaction history in the future and see the breakdown. Would that be sufficient? Given that, should I do 2 separate accounts? Existing 401K for my pre-tax and a Roth IRA for the after tax?

[Deleted User]

@raccah, I would not separate them out. There is no reason to do so. If you do, it will become impossible for you to manage. If you split pretax and Roth sources into two accounts, where do your other sources go? Employer Match, and any other source would then need to also be split out into it's own account. Every transaction would need to be split amongst all your separate source accounts you created. I would just keep things simple and download fund information and transactions into one account on Quicken and keep it at that.

Quicken is a place to organize and show your banking and investment accounts. The investment accounts show level fund activity, MV, G/L on a fund level. It is not made to be a participant recordkeeping system that shows balances and vesting by sources (401(k) Deferral, Roth Deferral, Employer Match, etc.) or balances by sources and funds. That is what Fidelity is for. They have both a brokerage system and a recordkeeping system for each 401(k), or retirement plan they administer. Any source (pretax, match, Roth) information you need should be available in your online account, or statement with Fidelity.

There are many statements made in this community forum about Quicken's lack of support for vesting, Roth, separating sources, etc. It makes me cringe to read these comments. People who make such comments don't understand how a 401(k) Plan works or how much it takes to administer and maintain a 401(k) or Retirement Plan. If people only knew what it takes to produce a simple thing like 401(k) statements, or maintain source balances, vesting, distribution rules, hardship basis, Roth basis, the Plan Documents, all the special tax reporting, legally mandated participant notices, they would understand why it costs Fidelity (and every other plan recordkeeper) multi-millions of dollars a year to maintain such a system. Quicken is not, nor ever meant to be, a participant recordkeeping system and that in no way means they are deficient or lacking in capabilities.

raccah

I don't download, but that is not the deciding factor. I don't want or need to track everything you mentioned, I just want to be able to have quicken help me tell what's taxable and what's not later. This is essentially the roth vs. traditional part.

[Deleted User]

That is something you can do easily without separating the sources. It is the total of your Roth deferrals less any Roth withdrawals you have taken. You should be able to confirm your calculation with your online account, or statement from Fidelity.

raccah

But isn't the growth in investments/divs/etc. also non-taxable for the roth part? And, you recommend tracking a roth withdrawal (in the future

) with a memo/tag or something?

[Deleted User]

If you withdraw Roth earnings prior to age 59 1/2, there is a 10% penalty on top of any taxes on the earnings withdrawal. Roth deferral withdrawals are always tax fee.

In terms of keeping track, you can just simply do a report on the Roth Deferral category, if you created one. If you use the paycheck wizard, you can add a memo "Roth Deferral" or something like that. For Roth withdrawals, a similar memo, maybe "Roth Basis WD" would work. Then you can run a Roth Basis Report anytime by choosing the appropriate category, or memo.

[Deleted User]

Every plan has different withdrawal options base on the plan document. Roth WDs for your plan may not be allowed or allowed only after age 59 1/2. After age 59 1/2 the Roth Basis becomes a moot point, and the entire Roth balance becomes non-taxable as long as you first contributed 5 years prior. If that is not the case, then you need to wait 5 years before your Roth balance is entirely tax free. The 5-year rule supersedes the age 59 1/2 requirement. And again, your Roth balance, and your Roth Basis, should be available from Fidelity.

raccah

But that is exactly my point. I don't know the Roth balance vs. the non-Roth balance in quicken.

[Deleted User]

I am sorry, but I will need to repeat what I said previously to try to make you understand -

There are many statements made in this community forum about Quicken's lack of support for vesting, Roth, separating sources, etc. It makes me cringe to read these comments. People who make such comments don't understand how a 401(k) Plan works or how much it takes to administer and maintain a 401(k) or Retirement Plan. If people only knew what it takes to produce a simple thing like 401(k) statements, or maintain source balances, vesting, distribution rules, hardship basis, Roth basis, the Plan Documents, all the special tax reporting, legally mandated participant notices, they would understand why it costs Fidelity (and every other plan recordkeeper) multi-millions of dollars a year to maintain such a system. Quicken is not, nor ever meant to be, a participant recordkeeping system and that in no way means they are deficient or lacking in capabilities.

Reporting the Roth Source balance, or Roth Basis is the responsibility of your recordkeeper - Fidelity. They should have this information readily available online, and your statements. In my opinion, there is no need to keep this information In Quicken, except for notational purposes. In that respect you can keep notes in the investment register (a Reminder transaction maybe). Otherwise, if you are intent on keeping track of Roth Balance outside of Fidelity, then I would recommend doing an ongoing calculation on a spreadsheet. Again, Quicken is not the type of program that can calculate balances by source, or Roth Basis, nor should it expected to be.

raccah

I understood the first time, but then you said "That is something you can do easily without separating the sources. It is the total of your Roth deferrals less any Roth withdrawals you have taken." so I thought there was something else...

I think I'll just wait to look at the Q2 Fidelity statement to decide how easy or hard this might be and whether it's worth it/possible to track more in quicken. Thanks for your input.

[Deleted User]

raccah said:

I understood the first time, but then you said "That is something you can do easily without separating the sources. It is the total of your Roth deferrals less any Roth withdrawals you have taken." so I thought there was something else...

Ok, I see. Sorry for my misunderstanding. I thought you were asking about how to calculate the Roth Basis. But you were really asking about separating the pretax and Roth sources. Calculating the Roth Basis is easily done but separating the sources accurately and in a meaningful way is impossible on any personal finance software, let alone Quicken.

mshiggins

@raccah
My 401(k) on Fidelity NetBenefits has a summary page that shows several views of my data:
-Current Balance amount with pre-tax contribution amounts
-Asset Classes bar chart
-Holdings donut chart
-Sources donut chart

The Sources donut chart has a Show Details link that does indeed show details, including the shares and balance of the Roth contributions.

Does your 401(k) show something similar?

Jim_Harman

raccah said:

I called and my plan does not allow choosing different investments. I asked and they said I can "view details" on dividends in transaction history in the future and see the breakdown. Would that be sufficient? Given that, should I do 2 separate accounts? Existing 401K for my pre-tax and a Roth IRA for the after tax?

I understand that you might not be able to specify different investments for existing traditional and Roth balances, but if your current contributions are 100% Roth, I would expect that you can choose what that money is invested in.

If you choose a different fund than your other holdings, then Quicken will track it separately, including any reinvested distributions. This is a workaround, not a full solution to your issue.

[Deleted User]

@jim_harman - every retirement plan has different provisions. It all depends on what is in the plan document and trust agreement. Most plans do not allow each source to have different investment options. Even if the current contribution is 100% Roth and you choose different investment options, it is still a cumbersome way to attempt to keep your Roth balance separate and is destined to fail. The investment elections are not static, any investment election change or fund change by the participant or employer can easily upend this workaround. It is also unrealistic to think the participant would never elect a split deferral between Roth and Pretax, or switch between Roth and Pretax deferrals and never forget to change investment elections.

Sorry for being so "hard nosed" about this but a plan provider (such as Fidelity) has many different systems that interface with each other in order to maintain 401(k) and retirement plans for participants. Plan providers spend multi-millions each year to maintain these systems. Quicken is made for investment level tracking and reporting only. Which is a great feature in itself for retirement planning. All other information that the participant needs such as Roth balances, After-tax Basis, Roth Basis, Hardship Basis, or Vested % should be obtained from the plan sponsor (HR), or plan provider.

raccah

@mshiggins - since this is newly offered to my plan, I haven't been able to see this yet.

Others, I already finished my pre-tax for the year, so my paycheck happens to be all after tax right now. Even so, the contribution in the after tax shows up in the tax summary report together with the other pre-tax ones from earlier in the year (Tax Impact of 401k transactions). I want to keep the transfers in designation on the account for the pretax ones. Is there any way to fix this? It seems like even if quicken doesn't offer full support, it could still fix this.

[Deleted User]

@raccah, when you started your Roth deferrals, did you change your paycheck setup in Quicken to reflect the deferrals as "After-Tax"? If not you would need to go back and set up a new After-tax the category for these Roth deferrals. One very important note - Do not delete the Pretax deferral set up in the paycheck, but change it to zero. It is looked at for other calculations and if you delete it, it may cause issues.

Jim_Harman

@Damian
One way for Quicken to offer a partial fix for this issue would be for them to add a "Percent Roth" setting to the 401(k) Account Details. Users would set this manually based on info from their 401(k) administrator, with a default of zero.

The Lifetime Planner and Tax Planner would use this setting to determine the portion of the 401(k) distributions that is taxable.

I realize this does not cover all 401(k) distributions, penalties, etc., but might be useful for planning purposes. What are your thoughts?

[Deleted User]

@Jim_harman - That would work, but the caveat is that it is a very rough estimate. How would that Roth percentage be calculated? I would surmise that one would need to go to their 401(k) account and calculate the percentage. But yes that would be a lot simpler than maintaining a Roth balance.

Jim_Harman

Yes, the user would calculate and periodically update the Roth percentage based on information from their statement or the provider's website.

raccah

@Damian I left my paycheck intact with the pre-tax and match and no after tax, but then I deleted the pre-tax and added the after tax in the instance of the paycheck when I entered it for this week. I saw other people saying they need to enter/leave a 0 in the pre-tax but I thought that was only if you needed to enter a match on that check. I can modify the recurring paycheck to have both and modify this one to have a 0 pre-tax, but I suspect the tax impact line might still be there.

[Deleted User]

@Raccah - the payroll wizard is very touchy. You really don't need to use it because you can accomplish the same thing with a spit transaction. As the tax planner and payroll wizard, Quicken needs to update both for Roth deferrals. You really shouldn't be made to find workarounds just to accommodate the Tax Planner.

mshiggins

@raccah
My experience is a bit different than @Damian's.

I've used the Paycheck wizard since late 2002 and never had any issues with it.

Regarding being able to track 401(k) sources in Quicken, you can track pretty much anything in Quicken if you're willing to invest time and some creativity. I've always tracked my 401(k) sources in Quicken. Originally because I wanted to be able to calculate returns with and without the employer contributions, but more recently to track the pre-tax vs. after-tax vs. Roth sources.

My paycheck transfers for pre-tax and after-tax contributions go to separate asset accounts, with the memo denoting the source: employee contribution, employee catch up contribution, after-tax contribution, etc.

The share purchases in the 401(k) account are BuyX transactions with the pre-tax asset account as the source for the employee contribution and employee catch up contribution and the after-tax asset account as the source for the after-tax contribution. Again, the transactions each have memos denoting the source. To further separate the pre-tax, after-tax, and Roth shares, I have three separate securities all with the same ticker symbol.

I've never downloaded transactions for the 401(k) as I did not like the sparse level of detail the downloaded transactions provided. I use memorized investment transactions and a scheduled transaction group to enter the BuyX transactions for employee contribution, employee catch up contribution, employer contribution, after-tax contribution, and Roth conversion. The transaction group gets entered in my 401(k) account every 2 weeks. Then the only work is to edit the transactions to reflect the current share amounts being purchased and enter the Sell transaction to sell the after-tax shares. Probably takes me less than 15 minutes every 2 weeks to enter and edit the transactions.

With this set up, I can generate a report by source with very little effort.

[Deleted User]

@mshiggins - pretty ingenious workaround!

But I can't believe you never had problems with the paycheck wizard.

Doing this or any manual process is not always feasible even if you were to put in the time. When I did a transfer or realignment in my 401(k) plan it would literally create hundreds of transactions. This is because the system would create a separate transaction for each fund, each source, and tax lot. Also every transaction that only involved 1 source was split by tax lot. My 401(k) account had 7 separate sources, with 5 contributing. There was no way I could enter these, or any transactions manually. This system was proprietary and we were forced to use this system when we merged with another bank around 2010 or so. (If you piece this together you probably can figure out what banks I am talking about.)

mshiggins

@Damian, not sure I am following. What does a transfer in your 401(k) account have to do with the paycheck wizard? They seem like unrelated events.

[Deleted User]

@mshiggins sorry for the confusion. Yes they are unrelated events. I split out my responses in paragraphs to make it clear. The last paragraph is in response to your comment about never downloading transactions for your 401(k) and entering transactions manually.

mshiggins

@Damian, ok got it now.

The paycheck wizard has performed 99.999% flawlessly for me through four employers over the last 20 years. I do recall one time having an errant entry in the secret hidden Tax Impact of 401(k) account. Deleted that entry and switched to asset accounts as the transfer destinations for the 401(k) funds.

In the past, I've had to enter more transactions per pay period and/or transactions for transfers. Depending on the number of transactions, I've used Excel to build QIF imports or memorized investment transactions combined with scheduled transaction groups.

[Deleted User]

@mshiggins - I am still amazed by your good luck with the paycheck wizard. I wonder why it works well for some and not for others? I do know that when there are errors with the paycheck transaction, it usually is a major issue and affects multiple paychecks at the same time.

mshiggins

@Damian, one reason may be I am not using subscription version of Quicken and absolutely no cloud account syncing.

fanfare

I planned to give my niece a copy of Quicken 2017 to try since she "doesn't want to pay".
It's good to know it is still useable that way.
Anyway, she'll probably discard it.