IRA reinvested dividends not treated correctly in Quicken

rotygolf

My IRA accounts with Fidelity treat reinvested dividends correctly as no cost basis because there is infinite gain on the dividends. Quicken reinvests the dividends and shows a costs basis as the price of the security at reinvestment. The gain in the account is shown incorrectly because Quicken is calculating the gain at the reinvested price. This would be correct for a taxable account but is not correct for a retirement account. Does Quicken understand they are doing this wrong and should be doing it like Fidelity and other brokerage accounts for retirement accounts?

Tom Young

This issue with Fidelity has been reported before. 

Actually, from the standpoint of GAAP accounting, Fidelity is wrong.  The shares purchased with reinvested dividends cost you real money, and your real gain or loss will be measured against that cost.

From the standpoint of Statutory Accounting (i.e., Tax accounting), you're partially correct in that any gain on those reinvested shares won't be taxed while that money is still in the account.  (Though all the money distributed - basis plus gain - will be taxed at ordinary income tax rates.)

The advantage with using GAAP accounting within Quicken is that you have real metrics that give you real views of securities' performance.  Example: over the years you reinvest $10,000 of dividends into a stock, and now the stock purchased that way is worth only $5,000.  In the Fidelity account those reinvested dividends have no basis and you might look at the worth of the stock and say "Yay!, this stock is a winner!"  But the truth of the matter, in the real world, is that the stock is a big looser.

Quicken typically tries to follow GAAP accounting and then, behind the scenes, does some work such that Statutory Accounting gets satisfied.  So if you've set up your Quicken Account properly, distributions from the IRA into your Quicken checking Account will show up as all taxed at ordinary tax rates.

q_lurker

A prior discussion on this same topic for reference. 

https://community.quicken.com/discussion/7865383/cost-basis-is-calculated-incorrectly-when-reinvesting-mutual-fund-dividends