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When withdrawing an RMD from an IRA account, what type of transaction is the check transfer out?

Strasma

For my required minimum distribution for U.S. income taxes in 2024, I sold shares in a mutual fund, had federal and state taxes withheld, and a check sent to my bank checking account.

I used transaction type Sell for selling the number of shares to achieve the RMD. Then I used transaction type Miscellaneous Expense for the amounts withheld for federal and state taxes. I also tried to use Miscellaneous Expense for the check distribution to my local bank checking account, with a category of Transfer[name of my local bank checking account], but Quicken tells me that isn't allowed with a transaction type of Miscellaneous Expense. It DID allow me to instead list a category of simply Transfer, with where added as a note. But how would Quicken rather I enter that transaction, so it can be directly linked to my local bank checking account in Quicken?

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Accepted answers

Jon

When I make IRA withdrawals, I set the Transaction Type field to Payment/Deposit, the Payee to Withdrawal, and the Category to Transfer:[account name].

All comments

Jon

When I make IRA withdrawals, I set the Transaction Type field to Payment/Deposit, the Payee to Withdrawal, and the Category to Transfer:[account name].

Strasma

That worked. Thanks. For Payee I used IRA RMD rather than Withdrawal, but all went well. Thanks again.

jon857

I entered the transaction for an IRA distribution the other day & pretty much made the same same choices as Strasma & Jon did. I am looking for a better choice of category so that this is flagged in a quicken report as taxable income for year end tax reporting. Does anyone have a different category choice that would accomplish this. Likely if one could be found I would use this for the download from the brokerage and create a second entry to transfer the distribution to my bank account.

jacobs

@Strasma @jon857

Here's the problem with entering IRA withdrawals in Quicken Mac: it's a transfer from the IRA account to the receiving checking or brokerage account — but we also want the transaction to show up as taxable income on a tax report. And there's currently no way to do that without a hack. A transfer transaction doesn't have a category, and a category is required to get the transaction associated with a tax line for reporting.

You may want to read through, or at least add your vote in favor of, this feature request to address this omission in the program:

https://community.quicken.com/discussion/7335879/quicken-for-mac-needs-a-wizard-to-handle-two-types-of-ira-withdrawals-rrif-accts-29-legacy-votes

If you don't want to wade through that, here's the hack I use to record the transfer and categorize it as taxable income. It may seem like a lot, but it's pretty simple:

In the IRA account, create a transaction to record the Sale of the security, creating a cash balance in the account.
In a checking, savings or non-retirement investment account, create a transaction to Transfer the cash out of the IRA account into the receiving account. It's important to create this transfer in the non-retirement account, transferring money in from the IRA account, not from the IRA account transferring money to the non-retirement account. (You'll see why in step 3.) If federal and/or state taxes were withheld at the time of the sale, the transaction is a split, with one (or more) lines for the taxes withheld and one for the gross amount of the IRA sale.

These two steps get both accounts to have the correct dollar amounts: the IRA account is back to a zero cash balance, and the receiving account has the correct cash received. But because Quicken Mac does not include IRA account transactions in the Tax Schedule report, the amount of the RMD — which is taxable income — does not show up on the Tax Schedule report. So we need a work-around or hack…
In the same transaction in the receiving account which does the transfer, add two more split lines:
• Use Category "Personal Income:Taxable IRA Withdrawal", which is assigned to the proper 1099-R tax line for the Tax Schedule report, with the amount of the total RMD withdrawal.
• Use category "Adjustment" or for the negative of the same amount.

Why does this work, and need to be done this way? To show up was taxable income, there needs to be an amount categorized as taxable income from an IRA withdrawal. Because retirement accounts are ignored in tax reports (since income such as divides and capital gains in retirement accounts is not taxable income), the income must be recognized in a non-retirement account. So the first bullet point in step 3 creates that taxable income — but it leaves the transfer transaction with an incorrect total of split lines, because the transfer split line and the income split line double-count the IRA withdrawal So that's where the second bullet point in set 3 comes in: and "Adjustment" in the opposite direction. "Adjustment" is a special category in Quicken Mac, because it makes money appear or disappear without showing up in any report.