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

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
7 votes

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  • Jim_Harman
    Jim_Harman SuperUser ✭✭✭✭✭
    edited May 7

    @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.

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  • mikek753b
    mikek753b Member ✭✭✭

    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 ✭✭✭✭✭

    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.

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  • Boatnmaniac
    Boatnmaniac SuperUser ✭✭✭✭✭

    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.

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