How to Record RMDs and Tax SIMPLY in Quicken Classic for Windows

Frank2

Using Quicken Classic Premier for Windows. Received my first monthly RMD from my IRA account. In the IRA register the transactions for RMD payment and Taxes withheld are recorded as 2 separate transactions. Only the RMD payment is recorded in my checking account register. How do I accurately record this payment (categorize) AND how do I track the Taxes withheld by the IRA custodian for payment to the Federal Taxes? How do I set this up in monthly payment/income?

Jim_Harman

Sorry, there is no simple way to do this. This enhancement has been "Planned" since August of 2023. See this discussion

https://community.quicken.com/discussion/7864626/improve-handling-of-ira-distributions-including-qcds-and-roth-conversions

Here are step by step instructions for what you must do currently. [adding] The process looks complicated, but as discussed below it is very simple to use once you have it set up as an income reminder.

There are no built-in Categories for IRA tax withholding; you must set them up yourself. I use these:

• Tax Fed:Fed IRA WH with a tax line item of 1099-R:IRA federal tax withheld
• Tax State:State IRA WH with a tax line item of 1099-R:IRA state tax withheld

In the IRA, click on the gear at the top right and select Edit account details. Click on Tax Schedule and set Transfers out to "1099-R:Total IRA taxable distrib." If you don’t see the Tax Schedule button at the bottom of the Account Details dialog, click on View in the top menu and select “Tabs to show”. In the list of tabs, select Planning.

Enter one or more Sold transactions for the securities that were sold. This will put a cash balance in the account equal to the total amount of the distribution, including any taxes that were withheld.

If no taxes are withheld from the distribution, you can simply enter the distribution in the IRA as a transfer to the receiving account.

If taxes are withheld from the distribution, the process is more complicated because you must record the gross distribution as well as the withholding(s) in the receiving account. To do this, go to the receiving account and:

1)  Enter a Deposit transaction for the net amount of the RMD as a positive number.

2)  Split the Category:

• Line 1 of the split:  Category = the IRA account name in [square brackets] for the gross amount as a positive number. This will create a transfer from the IRA.
• Line 2 of the split:  Category = the Fed tax withholding category that you use, as a negative number.
• Line 3 of the split:  Category = the State tax withholding category that you use, as a negative number.
• Total of the split:  Must equal the net amount of the deposit.

If the deposit is made to a banking account between Jan. 1 and April 15, you will see a dialog titled “Confirm Your Contribution Tax Year”, even though this is a distribution and not a contribution. Select the current year, not the default of the previous year, and click on OK. This seems to be a bug.

If you receive the distributions regularly, you can save repeated manual entry by setting up this transaction as an Income Reminder. You can even set up the Reminder to be entered automatically a few days before the transaction downloads.

If taxes were withheld, you must delete or not accept any downloaded transactions in the IRA for the net distribution and the withholding.

With this setup, the taxable income will be shown in the Tax Planner and the “1099-R Total IRA Taxable distrib.” and any tax withholding in the withholding sections of the Tax Schedule report.

Tom Young

The general solution to transferring money out of IRAs - RMDs or otherwise - when taxes are withheld is to record the entire transaction in the checking Account that received the transaction.

That is, in the checking Account you enter a transaction for the net after-tax deposit and you split that transaction. The first entry in the split is the gross amount of the distribution coded as a Transfer out of the IRA. Then you enter subseqequnt reductions for taxes, coded as federal and state taxes as necessary, coming to the net deposit amount previously entered.

To capture these transactions for tax purposes, over in the IRA Account click the Tax Schedule button on the General tab of the Account Details screen, coding Transfers out of the Account to the appropriate 1099-R income line. In the Categories you use for taxes withheld you associate the Tax Line Item for those Categories to the appropriate 1099-R Taxes Withheld line. (You don't need any "special" withholding Categories for IRA distributions, for tax purposes these are simply "taxes withheld" just like the withholding on a paycheck.)

If you have a regular withdrawal setup with the custodian of the IRA account you can set this transaction up for automatic entry using a Reminder.

Frank2

Jim,

Thanks for the lengthy response, but I am looking for a simpler way to do this. First of all, the IRA account is recording 2 separate transactions: (1) RMD monthly distribution net of taxes - this automatically deposited to my checking account and recorded in the appropriate register. (2) Taxes (federal) withheld monthly and recorded ONLY in the IRA account and I assume paid directly to the IRS ( I will follow up with my IRA Custodian to verify how the taxes are being handled and recorded.)

I am currently doing my own 'work around' but looking for better solution. What is the best and easiest way to record these two separate transactions? Creating a category for the RMD payment that goes directly to my checking account is pretty simple. Changing the Transaction for the Taxes withheld to a fictious payment to the checking account and then creating a fictious withdrawal from there to the category for Fed Taxes Withheld is tedious, but it's what I have done for this first go around…pending someone telling me an easier and less manually driven method, AND, how can all of this be built into a scheduled monthly income entry?

Thanks, Frank

Jim_Harman

@Tom Young I prefer to have special Categories for the IRA tax withholding, to match the Tax Line items in Quicken. In the tax reports, this will put the withholding in the 1099-R section.

Jim_Harman

@Frank2 We would all like a simpler method. The problem is that in order for the withholding to be captured in Quicken, it must be entered in a taxable account. That is why the distribution must be entered as the gross amount transferred to the taxable account and the withholding recorded there. You must then delete or not accept the transactions from the broker for the net amount and the withholding.

If you want a simpler way, you could tell the IRA custodian not to withhold taxes. Then the transfer would be for the gross amount and you would pay the taxes with quarterly estimated tax payments taken from a taxable account. That lets you keep the money a little longer, but you must have the cash ready for the payments and not forget to make them.

Disclaimer: I am not a tax advisor. You should consult your tax advisor to see if this is right for you and determine the correct amount for the payments to avoid penalties.

Tom Young

@Frank2

"AND, how can all of this be built into a scheduled monthly income entry?"

As I said above, assuming the distributions are regularly scheduled and a constant amount, the whole transaction could be captured in an Income Reminder scheduled to show up in the checking Account Register with the expected deposit date.

So when the download into the IRA occurs you look at what's been downloaded, confirm that the amounts haven't changed and are correct, then delete those transactions. The subsequent deposit that shows up in the checking Account should find a perfect "match" in to what the Reminder entered, capturing every element of the transaction. Assuming the monthly amount changes every year you "reuse" the Reminder by editing it for the new, correct amounts.

That's the easiest way to handle the situation as Quicken is currently configured.

Frank2

Okay, I think I am following this now. Basically, if I set up the Income reminder with a split between the RMD going into the checking account and the Taxes going into the appropriate category (e.g. Fed Tax - RMD) then I just enter that reminder at the time the RMD transaction appears in the register from the custodian, which of course is then deleted. Simple enough…Sidebar: Quicken Classic currently has an ongoing problem with Bill and Income Reminders that has not been resolved. Often it ends up with entries not being made or incorrectly made…both requiring manual corrections. I am my own 'Tax Advisor' so that portion of this is pretty straightforward. It's the techie stuff and programming that I have had to stay on top of…and that can be a nonintuitive learning curve. Thanks for the guidance.

Jim_Harman

One small change to the procedure you describe: Enter the Reminder or set Quicken to enter it automatically a few days before the distribution will be downloaded. That way the download will match to the transaction that is already entered in the receiving account. The most you will have to do is adjust the date to match the actual date of the distribution.

Frank2

I appreciate the follow up.