How to enter withdrawals from IRA after retirement

PBrimhall

I have been using Quicken for Windows since the late 90s and have not had any problems doing what I need to do up until now. However, I have run into issues since retiring a few months ago.

The financial advisors that handle my retirement funds each month pull $(X+Y) from my IRA. $Y is withheld for federal taxes (no state taxes for my state), and $X is deposited in my checking account. I can not download these transactions, I must enter them into Quicken manually. What I have been doing is entering a MiscExp transaction for $Y with category Tax:Fed and a WithdrwX transaction transferring $X from the IRA to my checking account, but I don't think this is correct. The $X transaction is showing as a transfer, not as income, which is messing up my Income and Expense reports and my Tax reports. The system also keeps asking me if the MiscExp is me paying for my 2021 taxes.

Any advice on how I should be entering these transactions? Should I not be trying to transfer, but instead be entering these as unrelated transactions, a MiscExp or WithdrwX from the IRA and some kind of income to the checking account?

Rocket J Squirrel

See this FAQ: 
https://community.quicken.com/discussion/7072150/faq-best-way-to-handle-distributions-from-ira

Boatnmaniac

Hi @PBrimhall .  The issue you are describing is a struggle for many people to grasp properly and to deal with.  It certainly was for me when I first retired.  But once I got over that hurdle it has worked pretty smoothly for me.

First, Quicken is not designed properly to effectively deal with IRA distributions.  There are a few good workarounds to deal with this, one of which is spelled out in the link that @Rocket J Squirrel posted above.  (It is the same process that I use.)

There is also a Product Improvement Idea that has been posted regarding this and I would strongly encourage you to read it and cast your vote for it:  Improve handling of IRA distributions, including QCDs and Roth conversions.  To cast your vote for it, click on the triangle below the first post in that thread as shown in this picture:

Second, it is a common misunderstanding that IRA distributions are income.  They may be taxable as far as the IRS is concerned but from a financial reporting perspective they are not because income increases net worth and expenses decrease net worth but gross IRA distributions do not change net worth at all.  They are simply a transfer of cash assets from one account to another.  The money in your IRA was income in previous years but it is not income today.  So, the IRA distributions will show up in Quicken as transfers, not as income.

Following the process spelled out in that FAQ link posted above will properly populate the Tax Reports and Tax Planner.  But the distributions will not show up as income in the Income and Expense reports (and other similar reports)....they will show up as Transfers.

As an alternative to the Income & Expense report for analysis, budgeting and planning you might want to look into the Banking > Cash Flow report (customized to show monthly or quarterly columns and, on the Advanced tab, to include all transactions, exclude external transfers and show all subcategories).  I find this report to be a more valuable tool for this purpose than the Income & Expense report because it shows everything as either Inflows or an Outflows that are both totaled and it nets everything out at the bottom.  You might find it helpful, as well.

Bob_L

FWIW, If you use budgets, the RMD transfer can be budgeted to show up as income in budget reports. 

[Deleted User]

RMDs are income when it comes to budgeting and cash flow.  It is also income for tax purposes.  It is deferred income that is not recognized as income until withdrawal.  So, in that respect, an RMD is not simply just a transfer.  It is a withdrawal of deferred income from your retirement account, but then should also be considered income in the receiving account. 

Boatnmaniac

Damian said:

RMDs are income when it comes to budgeting and cash flow.  It is also income for tax purposes.  It is deferred income that is not recognized as income until withdrawal.  So, in that respect, an RMD is not simply just a transfer.  It is a withdrawal of deferred income from your retirement account, but then should also be considered income in the receiving account. 

IRA distributions (almost any IRA distributions, not just the RMDs) are considered deferred income for tax purposes only.  Outside of the IRS (and the supporting Tax Reports and Tax Planner) they are not actual income, they are just transfers....no different from transferring cash from a taxable investment account or a savings account to a checking account.  The income for those IRA transfers occurred prior to the distributions and Quicken captured (or would have captured) that income (except in the tax reports and tax planner) accurately at the time the income was earned.

If one wants to thinks of those distribution transfers as "income" for cash flow and budgeting purposes then that is a personal choice but it does not change the fact that they are not income.  

BTW, in the Cash Flow report there are no groupings for Income or Expenses.  They are Inflows and Outflows.  The distribution transfers are properly captured as Inflows but they are shown in the report as transfers.

Also, in the Budget tool (which is really nothing more than a glorified Cash Flow planning and projection tool) they are included under the Income grouping but they are shown as transfers, as well.

I suppose if one really wanted to categorize IRA distributions as Income in the checking account register it could be done.  Just break the transfer link by changing line 1 of the category split to an Income category for the gross distribution amount...but make sure the category is linked to the taxable IRA distribution line item.  Leave line 2 of the category split as a negative number for the fed tax withheld.  Then in the IRA account, instead of transferring the money out of the account, set it up as a categorized expense for the gross distribution amount.  Of course, this means the link between the IRA account and the checking account is broken.  It would be like no longer using transfers to pay credit card accounts.  That is not a best practice but Quicken is flexible enough where I think one could make it work.

[Deleted User]

@Boatnmaniac - I spent 30 years in the retirement business, but I will not argue minutia with you.  Each person has to decide what works best for them, but I think the important thing is to capture this information for tax reporting and budgeting.  Net Worth, in my opinion is secondary once you retire.

UPDATE - this issue seems to be now fixed.  Sorry for the confusion.  Please see my other post below.
But one very important thing that I think everyone using Quicken should know.  The transfer function between retirement accounts in Quicken does not work properly.  If you make a transfer with any retirement plans, in or out, once you do a validate, the transfers will all be set to zero, in all reports.  These transfers can be identified by "Transfer" in the amount column of your register, instead of the transfer amount.  I have reported this issue over the years, and it has been replicated by Quicken, but so far, nothing has changed.

I have 26 separate transfers between retirement accounts, and other accounts that I had to "break" into "Withdraw" and "Deposit" transactions to get around this issue.  I have learned by experience that you should never use the transfer function when dealing with retirement accounts.
UPDATE - this issue seems to be now fixed.  Sorry for the confusion.  Please see my other post below. 

Boatnmaniac

Damian said:

@Boatnmaniac - I spent 30 years in the retirement business, but I will not argue minutia with you.  Each person has to decide what works best for them, but I think the important thing is to capture this information for tax reporting and budgeting.  Net Worth, in my opinion is secondary once you retire.

You and I have disagreed on some things in the past and that is OK.  In this particular matter, I think we are in agreement regarding it being vitally important to capture the data properly in tax reporting, tax planning, budgeting and cash flow.  The transfer process describe in the FAQ (essentially the same thing I talked about) does that very well.  But so will using properly set up categories instead of transfers, it's just that with this method there is no link to the matching transaction in the other account and that can be problematic when it comes to ensuring the transaction amounts are always identical in both accounts and in being able to easily go back and forth between the accounts.  But we both agree that the method to be used is a personal choice.

Regarding Net Worth after retiring:  The only point I was trying to make is that in the real world IRA distributions do not change Net Worth.  If something were to really be income (IRS taxes aside) it must increase Net Worth.  If there is no increase to Net Worth then it is not real income.  But if people want to think of it as income, then that is their call.

Damian said:

But one very important thing that I think everyone using Quicken should know.  The transfer function between retirement accounts in Quicken does not work properly.  If you make a transfer with any retirement plans, in or out, once you do a validate, the transfers will all be set to zero, in all reports.  These transfers can be identified by "Transfer" in the amount column of your register, instead of the transfer amount.  I have reported this issue over the years, and it has been replicated by Quicken, but so far, nothing has changed.

I have 26 separate transfers between retirement accounts, and other accounts that I had to "break" into "Withdraw" and "Deposit" transactions to get around this issue.  I have learned by experience that you should never use the transfer function when dealing with retirement accounts.

Thanks for the heads up. The situation you describe is not something I have observed (except with one old taxable investment account with a separate checking account that was converted from MS Money to Quicken in 2010).  I just did validate on a test file and the transfers to/from the IRA and 401k accounts remained intact so it's peaked my interest.  I'll have to try testing it out some more to see if I can get it to break.

mshiggins

Damian said:

But one very important thing that I think everyone using Quicken should know.  The transfer function between retirement accounts in Quicken does not work properly.  If you make a transfer with any retirement plans, in or out, once you do a validate, the transfers will all be set to zero, in all reports.  These transfers can be identified by "Transfer" in the amount column of your register, instead of the transfer amount.  I have reported this issue over the years, and it has been replicated by Quicken, but so far, nothing has changed.

@Damian

Is that an issue with the transfers or with Validate or both?

[Deleted User]

@Mshiggins - I am not sure.  It could be either, but the transfer amounts are zeroed out after you do a validate.  I am doing testing to see if it possibly has been fixed.  The last time I checked earlier this year it was still an issue.

[Deleted User]

@Mshiggings @boatnmaniac, just retested this issue and it now seems to be fixed.  Not sure when this happened.  Did not see a release note for the fix.  I apologize, I didn't know it was fixed. But the good news is that it no longer is an issue.

Just so you can see the original post where it was officially submitted for a fix - 

https://community.quicken.com/discussion/7890545/contribx-in-investment-transaction-report

If you scroll down to where to where you see the transaction reports with the red markups, you will see what the issue looked like.

[Deleted User]

With the investment cash transfer transaction now fixed, I think the process described in the link that @Rocket J Squirrel provided should work well.

To summarize for @PBrimhall - 

In the IRA account "Account Details" click on the "Tax Schedule" button and for Transfers out, select "1099-R:Total IRA taxable distrib.".



In the checking account create a split transaction for the RMD Deposit -



The first line is total RMD amount from the IRA.  This is a transfer from your IRA, so it would be your IRA account name in [brackets].  The second line is the Fed WH amount.  The split total is the net amount of the deposit to the checking account.  

Even though your investment advisors might reflect a separate Fed WH amount in your IRA account, in this process we need to show the total RMD transferred out because we need to show the Fed WH amount in the checking account in order for it to show in the Quicken Tax Reports.

To create a monthly reminder, just right click on the transaction in the checking register and select "Add Reminder".  Then in the Reminder setup screen make any adjustments necessary.  

 
Once you create a monthly reminder transaction it will save you from having to key in the RMD information each month.

Any investment sales required for your RMD in your IRA would of course need to be entered into Quicken as well.

@PBrimhall - sorry for all the confusion, I may have caused earlier, but hopefully you will see that this RMD process is pretty straightforward.  Please let us know if you have any questions.

Boatnmaniac

One last suggestion regarding the category for tax withholding:  There are several different Fed tax withholding line items that can be associated with expense categories for different types of income including IRA distributions, Pensions income, SIMPLE IRA distributions, Unemployment compensation, Railroad Retirement income, Interest income, Dividend income and probably a few others.  These different tax lines determine where in the Tax Reports and in Tax Planner they will be captured and shown.

The Quicken default category for Federal tax withheld is associated with W2:Fed tax withheld, self.  Using this category will capture the withholdings in the Tax Reports and in Tax Planner but it will place them under the 1040 section for tax withheld from Wages (i.e., W2) when it should be showing up under 1099-R income, instead.

To correct for this, I suggest creating a custom category for it (I created and use Fed Tax W/H_IRA Distrib) and then associating it with the 1099-R:IRA federal tax withheld tax line item.  This will then cause the tax withheld to be captured in the correct places in the Tax Reports and in Tax Planner and will clearly show that it is for IRA distributions, not for Wages income.

Foxbat25

Very helpful advice on workarounds for RMDs and withholding, and the advice much appreciated. How do we request Quicken provide for a taxable distribution (RMD or other) from a tax exempt account (IRA or RRA), and to provide for the federal, state and local withholding as part of the program instead of as a workaround?

Boatnmaniac

Foxbat25 said:

Very helpful advice on workarounds for RMDs and withholding, and the advice much appreciated. How do we request Quicken provide for a taxable distribution (RMD or other) from a tax exempt account (IRA or RRA), and to provide for the federal, state and local withholding as part of the program instead of as a workaround?

There is a Product Idea proposal already posted at Improve handling of IRA distributions, including QCDs and Roth conversions.  I encourage you to vote for the idea.  To vote for it, go to the bottom of the 1st post on the 1st page of the thread and click on the voting button as shown at the bottom left of this picture: