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Contribution type in 401ks

hurwi

With the new tax rules requiring some 401k catchup contributions to be categorized as Roth instead of Pretax, I need to be able to track contribution type in my 401k account. Most contributions will be pretax, but catchup contributions will be Roth. Is there any way to track contribution type and track portfolio value by contribution type?

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John_in_NC

Hi, @hurwi

I don't have an answer, but take a look at this thread as it is dealing with the same topic:

https://community.quicken.com/discussion/7969982/alight-401ks-and-2026-catchup-contribution-changes

jacobs

@hurwi Are the contributions comingled in one 401k account, or did they create a separate 401k Roth account for the catch-up contributions? And does your employer even support 401k Roth contributions? (Not all employers offer this, and they aren't required to.)

If the contributions go into a single 401k account, I don't know how Quicken can track them separately. You could possibly add a Tag to the Roth contributions to be able to see how much of your basis is Roth — but I don't know about how you'd track dividends and capital gains separately for the Roth and non-Roth portions of your 401k. You might have to rely on reporting from your 401k provider, and just treat the 401k in Quicken as tax-free investment income without tracking the pre-tax basis you will have to eventually pay tax on.

hurwi

@jacobs contributions are comingled in one 401k account and employer supports 401k Roth contributions in this way.

Boatnmaniac

If you are not downloading your 401K into Quicken and are instead manually managing the account you might want to consider having two 401K accounts in Quicken….one for the pre-tax contributions and one for the after-tax (Roth) contributions. I don't know if this would work for you but it might be worth a try.

jacobs

@Boatnmaniac I thought about suggesting dragging the Roth-designated contributions, if they are separate, into a separate account. But the problem is: how would you separate the earnings — dividends, capital gains — between two accounts? And then reconcile the two accounts in Quicken against a single account at the brokerage? If my 401k has 100 shares of XYZ fund, of which 81.234 shares are pre-tax/tax-deferred and 18.766 shares are post-tax (Roth), and the XYZ fund has a reinvested dividend of 1.345 shares, how do you keep track of the basis which is pre- and post-tax? I just don't see a viable way to track this in Quicken.

Boatnmaniac

@jacobs - Perhaps the first thing is to forget about is tracking cost basis. Cost basis in retirement accounts doesn't really mean anything because the pre-tax 401K contributions and earnings are 100% tax deferred as normal income and the after-tax Roth contributions and earnings distributions are 100% tax exempt. So there is no investments tax benefit for tracking cost basis.

However costs basis does matter if one wants to track individual securities' performances but I used to simply review the plans' monthly and quarterly documents for my accounts to get a good idea of how each security was performing. For me, that was good enough to let me know if I should be making any allocations adjustments.

The hardest part of doing what I suggested would be to pull out the details from the plan documents, such as:

What total dollars are 401K and what total dollars are Roth?
Do the same for each of the securities…both shares and total values, especially if the allocations of the securities are different between the 401K and the Roth.
With this information one could set up the securities allocations in the 2 accounts…perhaps even including the cost basis if desired.
When there is income from the investments it would need to be proportionately allocated by security in each account. I think if I were to try to do this I would set up a template in worksheet like Excel so when there is new income I can just plug it in and it would calculate out how all of the income is to be allocated between the two accounts and all of the securities.
Then, each pay period, enter the necessary Buys, Interest, etc., transactions in each account.

This is just some brainstorming on my part but off the top of my head this seems like it would be workable on a manual basis. However, the level of effort on this would depend largely on how many different securities are involved.

I just can't think of any other way that Quicken would be able to manage it unless and until the code gets updated. (I seem to recall the last time they tried to update the code for Roth 401Ks it failed pretty miserably.)

jacobs

Sorry, I didn't mean actual cost basis above; you're right that that's not relevant to retirement accounts. I was referring to keeping track of how much of each holding in the account is pre- and post-tax after buys every pay period and dividends every month. You're right, if there are a small number of holdings, it might be viable to track this in a spreadsheet; if there are a lot of holdings, it just becomes a lot of manual work. I guess the question is what information you'd want to be able to see in Quicken. Presumably you can log onto the 401k brokerage and get the pre-/post-tax breakdown at any time. And Quicken doesn't have tools to handle Roth conversions and RMDs, so users who want to generate accurate tax reports from Quicken have to resort to awkward workarounds anyway. Maybe it's easiest to make one adjustment at the end of each year and not try to track it transaction-by-transaction?

Boatnmaniac

Yes, the whole IRA/401K and Roth management capabilities are quite lacking in Quicken. I know improvement in this is planned but this is a pretty broad scope subject so who knows how much of it will be in whatever they end up rolling out.

Maybe it's easiest to make one adjustment at the end of each year and not try to track it transaction-by-transaction?

Yes, or maybe 1X per quarter?

But another idea is to maybe do Simple tracking instead of Complete tracking? It might be the easiest way because all you'd need to do is track the number of allocated securities shares in each account and, of course, the security prices (which would apply to the securities regardless of the account).

John_in_NC

Hi again, @hurwi

Your post in the other thread might be key: you won't see how this really is handled until you hit the point later in the year when you exceed your under 50 (traditional)) 401k contribution limits and the $ additional becomes Roth 401k contributions.

Then, you can determine how Fidelity is handling things.

hurwi

@John_in_NC I know how Fidelity will handle things because I spoke to them. There is already a way they split contributions in the account. In this case, it is split between my pretax contributions and company match. There will be a new category in my account and that will be Roth contributions. None of that information is downloaded to Quicken so there won't be the ability to track those in Quicken's current state.

Contributions are made weekly so keeping track of this manually is not feasible. Cost basis is also pretty important to track to determine how funds are performing and how performance compares across accounts and to make decisions around whether changes need to be made to funds or accounts.