IRA Distribution

Question

Hi.  I just took a first IRA distribution, so I'm new to this.  In my investing/IRA account I see a sale, a check that doesn't say but is the amount sent to me, another item described check that was my federal income tax, and another for state income tax.  my checking account shows a deposit for the net.  What's the best way to track all this?

jacobs · Answer

@Bennett S If you just want to record to flow of money, the comments above point you in the right direction: in the checking account, enter a deposit transaction for the amount of the check, and create three split lines to reflect the amount of your IRA redemption (a transfer from your IRA account), the federal taxes withheld, and state taxes withheld.

Now if you want the IRA distribution to be reflected correctly in Quicken's tax reports, there are some additional challenges. That's because Quicken Mac doesn't yet have a specific feature for this, and by default, Quicken's tax reports exclude retirement accounts (because income earned in a retirement account, like dividends, interest and capital gains, isn't taxable income). There are two ways to make your RMD show up as taxable income to work around Quicken Mac not having a specific built-in way to do it. One requires two transactions to transfer the money, and the other requires a little hack. In both cases, you start by recording the sale of whatever security you sold to make the withdrawal, generating the cash for the distribution — which you said you already have in your IRA account.

In the first method, you enter one transaction in the IRA account as Type=Payment/Deposit for the amount of your withdrawal, and use Category=Transfer. This is not a linked transfer to the receiving account, just a generic "Transfer," a special category Quicken uses to make money appear or disappear without being income or expense. Then you enter a second transaction in the receiving account, a deposit (money-in) transaction using the category Personal Income > Taxable IRA Withdrawal (which is assigned to the proper 1099-R tax line for the Tax Schedule report). (So if you withdrew $10,000 from the IRA and had $2,000 with held for deferral taxes and $500 withdrawn for state taxes, you'd enter the deposit for the $7,500 you received, and have three splits lines for the $10,000 with Category=Personal Income > Taxable IRA Withdrawal, $2,000 for federal tax, and $500 for state tax.) It's this transaction in your checking account which will show up in your Tax Schedule report. It's funky, because the first transaction makes the money go out of the IRA account without specifying where it went, and the second transaction in the checking account records income without specifying where it came from — but both accounts have the correct balance and the taxable income is recognized.

In the second method, which is what I use, you use a linked transfer to show the movement of money between the two accounts; but because transfers can't be income or expenses, you then need to manufacture the taxable income. This sounds a little more complex, but it's pretty simple:

* In the checking 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 a second.) As above, with withheld taxes, the transaction is a split. So if you withdrew $10,000 from the IRA and had $2,000 with held for deferral taxes and $500 withdrawn for state taxes, you'd enter the deposit for the $7,500 you received, and have three splits lines for the $10,000 with Category="Transfer:[IRA account name]", $2,000 for federal tax, and $500 for state tax.

That transfer transaction gets 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 here comes the 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 (e.g. $10,000 in my example).

• Use category="Adjustment" or for the negative of the same amount. (e.g. -$10,000).

"Adjustment" is a special category in Quicken Mac which makes money appear or disappear without showing up in any report. So in this approach, one split line creates the taxable income which is needed for the tax report, and the adjustment split line makes that money come from nowhere by keeping the transaction amount unchanged. This is how to work around the transfer from the IRA account not being able to also have an income category.

That sounds crazy complicated but it's still just a single transaction with several split lines. Best of all, once you enter one such transaction, for future IRA withdrawals, you can duplicate it and just adjust the date and amounts.

A lot of Quicken Mac users would like the developers to make this simpler for users by adding a specific RMD/retirement withdrawal feature Quicken Mac. I encourage you to click the View Post link below and add your vote for the feature request:

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

Jon · Answer

@Bennett S You have a choice to make. When you let your IRA manager withhold taxes from a distribution, the tax withholdings show up as withdrawals in the IRA. Some Quicken Mac screens & reports don't show transactions inside retirement accounts & won't accurately reflect the taxes you've paid. If you don't rely on Quicken to keep track of your tax payments then this may not be an issue for you.

However if you do want those payments to show up in your Quicken tax report and other places, you can do what @maxwelwp suggests and move those withholdings into a split transaction in your Checking account. Your IRA account register won't match your IRA statement - instead of three withdrawals adding up to the total distribution you'll just have one withdrawal for the entire amount - but your Quicken dashboards and tax reports will be correct.

maxwelwp · Answer

These are not handled so well by Quicken. I had the same circumstance with Distrubutions. 3 entries in the IRA account each month. In order to properly track for tax purposes in quicken, create a xfer into your checking account similar to the following split. The downloaded transactions in your investment account can be deleted. Your monthly statement from the financial institution will still show the 3 transactions but will not match the quicken entries so when you reconcile each month, it can be marked as cleared/reconciled then.

Should also mention the created Tax categories are as follows: