What is current/correct way to setup Roth 401k account?

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mikek753b
mikek753b Member ✭✭✭✭
edited June 2023 in Investing (Windows)

With new 401k Roth support - how to correctly setup this account?

Should it be 401k type and Tax deferred as NO?

as this is after tax and should not be taxed again, ever.

What should be in Tax Schedule? both empty?

How to mark this account as 401k Roth type?

How it's different from Roth IRA type? that comes with 1099R distribution form?

Any documentation for Quicken Roth 401k account type?

thanks

Best Regards

Comments

  • MarkHyman
    MarkHyman Member
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    Similar concerns. I switched to making Roth 401k contributions so I have one 401k account with both types- would be helpful to get a "how to" on using the new functionality to track correctly (e.g., do I need to set up a separate account?). Also, as another user has reported, the new Roth 401k paycheck deduction doesn't provide for an employer match, which doesn't make sense.

  • Jim_Harman
    Jim_Harman SuperUser ✭✭✭✭✭
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    The new functionality is limited - it only tracks Roth contributions, not holdings so far. At least this should make Quicken's current year tax reporting and the Tax Planner correct.

    If your 401(k) is all one account, the best you can do at this point is to choose different investments for the Roth contributions. See this Idea discussion for more information

    Hopefully there will be more developments in this area at some point in the future.

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  • mikek753b
    mikek753b Member ✭✭✭✭
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    yes, I use 2 accounts:

    1. linked to Fidelity
    2. fake account that takes contributions from my paycheck

    my question remains - what and how to setup intermediate fake Roth 401k account?

    I don't see such expected account type as Roth401k yet

    should Roth IRA type be used for a while?

    Tax Schedule? both empty?

    very confusing

    Best Regards
  • Jim_Harman
    Jim_Harman SuperUser ✭✭✭✭✭
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    Roth IRA is the closest account type Quicken has to a Roth 401(k).

    The problem many people have is that administrators put both the traditional and the Roth parts into one account, and separating the contributions, investment holdings, reinvested dividends, etc can be tricky.

    The tax schedules should be the same as for a Roth IRA I think, but many people split their 401(k) into separate traditional and Roth IRAs when they retire so they can manage the distributions better. Currently Roth 401(k)s have RMDs but Roth IRAs do not.

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  • mikek753b
    mikek753b Member ✭✭✭✭
    edited May 2023
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    @Jim_Harman thank you for prompt answer.

    if you can answer in more details:

    Why Roth IRA is deferred type? there is nothing to defer tax wise IMHO

    Why Roth IRA has Tax Schedule for Out as 1099-R ? I think this is tracked as taxable event by Quicken. Should it be empty for both In and Out?

    no, my planner report don't look correct, so I try to understand what and where to fix to get correct tax wise distributions from Roth type

    I just don't see Roth type accounts in the planner at all, I have just :

    1. Taxable
    2. Your Tax deferred
    3. Spose Tax deferred

    but, nothing for Roth, or Tax free

    Best Regards
  • Jim_Harman
    Jim_Harman SuperUser ✭✭✭✭✭
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    A Roth IRA is deferred because its income and capital gains are not taxed.

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  • Boatnmaniac
    Boatnmaniac SuperUser ✭✭✭✭✭
    edited May 2023
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    I think the 3 main differences between Roth 401(k)s and Roth IRAs are:

    1. Roth 401(k)s are employer sponsored plans while Roth IRAs are personal retirement plans. Contributions to both are after-tax and both are tax exempt forever. (Quicken will show the accounts as Tax Deferred but they play into reports and Tax Planner as Tax Exempt.)
    2. Roth 401(k)s and Roth IRAs have different maximum contribution limits. (I'm not sure what the current limits are.)
    3. RMDs apply to Roth 401(k)s, just like with 401(k)s and IRAs. When the RMDs need to start being taken varies based upon the birth date. Failure to comply with the RMD requirements will incur a penalty. RMDs do not apply to Roth IRAs.

    I agree that this new Roth 401(k) paycheck deduction option is currently half-baked because:

    1. There is still no Roth 401(k) account option.
    2. There is no employer contribution for the Roth 401(k).
    3. It does not yet address how 401(k) accounts in Quicken can properly manage both regular and Roth contributions to, holdings in and distributions from the same account.

    Until these issues are addressed or someone has found a way to deal with these things perhaps the best thing to do at this time is as follows. I have done limited testing and it appears that the following will capture the data properly in Tax Reports and Tax Planner.:

    • If your Roth 401(k) holdings are in a separate account: Set up the account in Quicken as a Roth IRA account…name it as a Roth 401(k). Direct the After-Tax paycheck deduction to this Roth 401(k)-named Roth IRA account. Doing it this way will be properly reflected in the Tax Reports and Tax Planner.
    • If your Roth 401(k) and regular 401(k) holdings are held in a single account: There is, IMO, no good solution for how to deal with this at this time. One could, as suggested by @Jim_Harman in his post earlier today, have both the 401(k) and Roth 401(k) deductions transferred into the same 401(k) account but have differently named securities for the Roth 401(k) investments. A big issue with this is that the Roth 401(k) deductions will show up in Tax Reports and Tax Planner as Pre-Tax deductions instead of After-Tax deductions. The other option would be to have the Roth 401(k) contributions transferred into a Roth IRA account but then you would have 2 accounts in Quicken…one for the 401(k) and one for the Roth 401(k) when there should be only one combined account. Until this issue gets resolved by Quicken it will be a personal choice as to which method to use.

    Neither of these options will address employer contributions, though. For this, I think I would:

    • Set up the Paycheck Reminder with a standard Pre-Tax 401(k) paycheck deduction of $0 plus an amount for the employer contribution. Again, direct this to the Roth 401(k)-named Roth IRA account.

    I'm all ears if someone has any other suggestions.

    Quicken Classic Premier (US) Subscription: R57.16 on Windows 11

  • mikek753b
    mikek753b Member ✭✭✭✭
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    I can't find expected " Tax Exempt" in Tax Planner and I have real Roth IRA linked to Fidelity and "fake" Roth 401k (as Roth IRA type)

    nether shows up as  Tax Exempt

    Best Regards
  • Boatnmaniac
    Boatnmaniac SuperUser ✭✭✭✭✭
    edited May 2023
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    You will not find "Tax Exempt" in Tax Planner because Tax Planner is designed to capture tax related events. Tax exempt transactions are not tax related events. The fact that you are not seeing your Roth 401(k) and Roth IRA transactions in Tax Planner is a good thing. You should not be seeing Roth 401(k) and Roth IRA transactions in any of the Tax Reports, either.

    Quicken Classic Premier (US) Subscription: R57.16 on Windows 11

  • mikek753b
    mikek753b Member ✭✭✭✭
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    I don't see in Lifetime Planner ether that  "Tax Exempt" ether

    as result I don't think Lifetime Planner is correctly plans

    where and how do you see  "Tax Exempt" accounts?

    tnx

    Best Regards
  • Boatnmaniac
    Boatnmaniac SuperUser ✭✭✭✭✭
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    When setting up Lifetime Planner there is no separate listing for "Tax Exempt" vs "Tax Deferred" vs "Taxable". You simply select the investment accounts you want included in the plan. Lifetime Planner will then pull data from the Account Details for each of those accounts to determine what type of accounts they are and whether or not they are taxable or "tax deferred" (which includes "tax exempt").

    How well Lifetime Planner differentiates between true tax deferred accounts and tax exempt accounts in the outputted plan is something we'll probably never have insight into. The best we'll see is the chart which shows taxable assets and tax deferred assets. My guess is that tax exempt accounts are accounted for properly in the calculations but the output is lumped together with other tax deferred accounts because that is how they are shown in Account Details.

    The fact that Tax Planner and the Tax Reports do differentiate between tax exempt and true tax deferred deferred accounts like IRAs and 401(k)s gives me some confidence that Lifetime Planner is probably doing the same thing.

    If it does not differentiate between tax exempt and tax deferred then we should have some confidence that Lifetime Planner is returning a more conservative projection because it would then be including tax expenses that will not actually be incurred. So in real life the positive financial picture will be actually better than is what is projected in the chart.

    How accurate is Lifetime Planner? I think it should be viewed only as a good reasonably detailed ballpark projection and nothing more than that. I have done sanity checks on Lifetime Planner many times over the years using other free tools that are available online, such as the tools available from Fidelity (where all my investment accounts are), Vanguard, AARP and others. Most of those tools do not provide opportunity to enter anywhere near the level of detail that Lifetime Planner does but I've always been amazed at how well they all returned results within the same general ballpark.

    Should Quicken change the wording on Account Details for Roth 401(k) and Roth IRA accounts from "Tax Deferred" to "Tax Exempt"? I think that would be a good idea, if for no other reason than to eliminate some potential confusion/concerns such as what you are expressing (and, no, you are not the first person to raise these questions). If you want to, you can suggest this change be made to Quicken at Product Ideas - Quicken for Windows and then clicking in the New Idea button. Be sure to vote for your idea after you post it. Quicken employees do review ideas that are posted here and the more votes an idea gets the more likely it is that the idea will at some time be added to their Product Development Plan.

    Quicken Classic Premier (US) Subscription: R57.16 on Windows 11

  • mikek753b
    mikek753b Member ✭✭✭✭
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    BTW - I called Premium Tech Support, but didn't get any answers related to this Roth type situation, I was asked to call again.

    Best Regards
  • Boatnmaniac
    Boatnmaniac SuperUser ✭✭✭✭✭
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    @mikek753b - I voted for it.

    Quicken Classic Premier (US) Subscription: R57.16 on Windows 11

  • Drinkingbird
    Drinkingbird Member ✭✭✭✭
    edited May 2023
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    Another workaround for your list. If you want your transfers to a single 401K account to be tracked separately (not have the Roth contribution be counted as pre-tax _401Contrib type), don't use the Roth 401k that they've added. Create your own generic after tax deduction in paycheck, call it whatever (Employee ROTH 401K Contribution is what I've always used) add the amount, pick your 401K account from the dropdown, and then type "/Roth" after the account name, it will automatically pop up "[Your 401k account]/Roth401KContrib" which will tag the transactions as Roth but not run them through the hidden "tax impact" account and not categorize them as _401Contrib or deduct them from your taxable income. This is making use of the new tag they added but technically you could make and use your own tag. I guess you could actually do this before probably, just never knew you could. So effectively the only useful thing in this new feature has always been available, and the previous "DIY" solution did not get incorrectly categorized as pre-tax.

    Of course this does nothing to solve the tax planner/life planner issues etc. This "feature" really needs to go back to the drawing board. It is clear the people who developed this have no understanding of Roth. Someone sent a request to the development team in India (once the budget was finally approved after years) to "add a roth 401k to after tax deductions" and that's literally all they did.

    On the investment transactions, I do go into the "cash source" for my roth "bought" transactions, and change them to "employee after tax deduction" however currently that tag does not get used by anything. My hope is that some day there will be a report or way to differentiate, but I'm also not holding my breath.

This discussion has been closed.