Create "Tax Exempt" type for Roth 401k and Roth IRA

Options
mikek753b
mikek753b Member ✭✭✭✭
edited October 2023 in Budget and Planning Tools

Please, introduce Tax Exempt type for Roth 401k and Roth IRA

that all Roth type accounts can be properly tracked in Tax and Planning tools

the Roth is Tax Exempt type, it isn't tax deferred, no needs to track to tax it distributions

This way Lifetime Planner can show extra Tax Exempt type for easier understanding of total and when distributions will happen

Currently Roth type is marked as Tax Deferred and it's misleading.

This way Roth 401k and Roth IRA will be "Tax Exempt" and no need for Deferred option for this type.

Lifetime Planner would show as expected correct split between after tax, 401k before tax and "Tax Exempt", also would guide to run distributions from 401k / tax deferred before starting distributions from "Tax Exempt" for normal situation, when tax rate is low

Best Regards
21
21 votes

Reviewed · Last Updated

Comments

  • Jim_Harman
    Jim_Harman SuperUser ✭✭✭✭✭
    edited May 2023
    Options

    @mikek753b It is not clear how Quicken should treat accounts differently if they are identified as "Tax exempt".

    It appears that the current "Tax deferred" Yes/No radio buttons are a carry-over from before Quicken had explicit support for IRAs and 401(k)s. Setting Tax deferred to Yes excludes the account by default from Quicken's Tax reports, which in turn means that income and capital gains are not included in the reports.

    For many years now Quicken has had support for many types of retirement account types, including

    • Traditional IRA
    • Roth IRA
    • Coverdell
    • Keough
    • SEP IRA
    • Simple IRA
    • 401(k)/403(b)

    These accounts have different contribution limits and rules, tax treatment of contributions, RMD requirements, withdrawal rules, and tax treatment of withdrawals. For all of them, income and capital gains are not taxed while your money is in the account.

    There is not currently a Roth 401(k) account type, but I think implementing that along with its contribution and withdrawal rules would be a better approach than adding a 3rd option to the Tax deferred selection.

    See this Idea post for further discussion on this topic

    Unfortunately many 401(k) administrators combine the traditional and Roth holdings into one account, making it very difficult for Quicken's Lifetime Planner to tell how distributions will be taxed. One proposal in the Idea post above would be for Quicken to support a user setting for 401(k) accounts that would let you specify how much of the account is Roth, i.e. not taxed on withdrawal.

    QWin Premier subscription
  • mikek753b
    mikek753b Member ✭✭✭✭
    Options

    yes, proper Roth type is the way to go

    where the Roth is the "Tax deferred" and has to be treated in this specific way, that again has nothing to do with the "Tax deferred", current half way workaround IMHO

    As for me I'd like to see very clear separations between taxable, "Tax deferred" and "Tax exempt" for my assets to make appropriate decision and getting guidance from Quicken .

    Would you open your idea for a Vote for proper Roth 401k and Roth IRA? pls.

    I will vote for it as I need "Tax exempt" Roth in Quicken for all tax and planning related features.

    Best Regards
  • Jim_Harman
    Jim_Harman SuperUser ✭✭✭✭✭
    Options

    One way you can separate your accounts for tracking purposes is to create an Investing > Portfolio view for each type of account. I have "Holdings" which includes all of my accounts, "Holdings Taxable" for taxable accounts, "Holdings deferred" for traditional IRA, 401(k), and 403(b) accounts, and "Holdings Roth" for what I think you would call tax exempt accounts.

    This leaves open where to put an HSA investment account. I group mine with the Roth accounts because withdrawals are not taxed if I use them for medical expenses.

    QWin Premier subscription
  • Boatnmaniac
    Boatnmaniac SuperUser ✭✭✭✭✭
    Options

    From my perspective, this is not about creating a new type of account. It's about calling an account what it is instead of calling it something that it is not. It's about calling tax exempt accounts what they are…."tax exempt"…instead of "tax deferred." As mentioned in this Product Idea, to call Roth accounts "tax deferred" when they are really tax exempt is at best misleading and confusing but it is also very inaccurate. Because of this it reduces confidence in Quicken that it is properly and accurately capturing the Roth (and other tax exempt accounts) in the Tax Reports, Tax Planner and Lifetime Planner.

    For Roth IRAs this should be a relatively simple matter since it appears that Roth IRAs are already properly treated in Quicken as tax exempt (except in Lifetime Planner where it seems that tax exempt data is lumped together under the tax deferred designation). So why not just change the "Tax deferred" designation on the General tab of Account Details to show "Tax exempt"?

    While the recently added ability to enter after-tax deductions for Roth 401(k) accounts is a really good thing it is also very apparent that it was perhaps released prematurely for a number of reasons but perhaps most notably because it did not also create the ability to set up a tax exempt Roth 401(k) account that is really a Roth 401(k) account and not a Roth IRA account.

    To lump "tax deferred" and "tax exempt" accounts together under "tax deferred" but then to treat them differently from each other in tax reports, Tax Planner and Lifetime Planner is not only very confusing but just plain wrong. I fully support this Product Idea.

    Quicken Classic Premier (US) Subscription: R55.26 on Windows 11

  • wassonsubs
    wassonsubs Member ✭✭
    edited September 2023
    Options

    [Removed - Rant] No Roth separation means that I have to do too much work correcting things for tax efficiency [Removed - Off Topic]

  • imdcareys
    imdcareys Member ✭✭✭✭
    Options

    To further muck it up, an employer match to a Roth 401(k) is not tax-exempt. So you need a way to separate not only the contributions, but also track the Traditional portion of the investments purchased with the employer match separately from the Exempt portion of the investments purchased with the employee Roth contributions.

    Win 11 - Quicken Premier - v54.16

  • wassonsubs
    wassonsubs Member ✭✭
    Options

    I'm very disillusioned with Quicken these days. I have had the product now for 25 years and it just doesn't keep up with the times. I can't separate my Roth 401k elements. I can't download multiple Fidelity accounts. It won't cope with the small 401k sales for account maintenance fees (it downloads the sale but not the removal of the cash). I am having to do serious cleanup every time I download and keep separate files of my Roth vs pretax, so what am I really paying for. The only thing it does is download security values I want to be able to see my Roth, see my conversions to Roth, and not have to do much correction work. When will this happen? Quicken have had 20+ years to get 401k Roth included in the product and still nothing!

  • gewilson
    gewilson Member
    Options

    As a young user, planning long-term goals, using the Lifetime Planner, for my spouse and myself has been an important part of our financial considerations. The addition of Roth accounts would be game-changing in understanding how to best make choices today. I understand this adds another layer of complexity to the program in discerning payouts during retirement. That said, there could be a maximization/minimization formula that calculates the amount of withdrawal to cover retirement living expenses across the entirety of retirement - maximize ending balance or minimize taxes paid. Also, adding the ability to analyze Roth conversion opportunities would be huge, but first baby steps.

  • mikek753b
    mikek753b Member ✭✭✭✭
    Options

    @Quicken Alyssa Is the a feature request and implementation ETA for this matter?

    Best Regards
  • Jim_Harman
    Jim_Harman SuperUser ✭✭✭✭✭
    Options

    This Idea currently has 20 votes and its status is "Reviewed," which means the request is reasonably clear and not a duplicate. Typically it takes 50 votes for a request to be referred to Development and Product Management, at which point its status is changed from "Reviewed" to "Under Consideration". If it is accepted and put in the product plans, it becomes "Planned".

    Quicken hardly ever says when a new feature will be released.

    QWin Premier subscription
  • Scooterlam
    Scooterlam SuperUser, Windows Beta Beta
    Options

    @gewilson

    Have a look at some of these ideas, linked below, that pertain to improving Roth handling within Lifetime Planner. Please be sure to vote on the ones that interest you.

    The first idea is to your point, allow order of withdrawal sequences to be user defined, as an option. Let the user explore alternative account drawdown strategies to maximize plan balances or minimize taxes, or other….

    The second idea requests better transparency of the Roth account balances in the summary tables. Let the user see and verify how accounts are being drawn down in the year over year data.

    The third idea requests a Roth conversion feature. Let the user determine what affect a Roth conversion has on their overall retirement plan goals.

    The last post gives you some indication how Roth IRAs are treated in Lifetime Planner today. Surprisingly decent but could be better. Have a look at this education post.

    Hope this helps.

  • gcmobley
    gcmobley Member ✭✭
    Options

    This needs to happen. Anyone doing after-tax ROTH in-plan conversions are in pickle trying to track this… The custodians just dump it all into 1 account.

  • QuickUserPSP
    QuickUserPSP Member, Windows Beta Beta
    Options

    @gcmobley your plan provider or administrator is responsible to keep track of money types or sources of money. You should be able to get all ROTH basis information from your online retirement account that the plan sponsor or administrator provides. The plan custodian just keeps track of the investments in your retirement plan, so yes, they do "just dump it all into 1 account".

    Your employer pays the plan administrator and (custodian, if separate) a lot of money to provide these retirement plans to their employees. In turn, the plan administrators pay their vendors a lot of money for the systems and software required to run retirement plans for your employer.

    I find it interesting that a few vocal users are wanting retirement plan features but when it comes time to pay for the features they ask for, they complain