Accounting Treatment of Taxable IRA Distributions

[Mike or Penny Novack]

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>I now understand your logic.  However, in my case, I am retired and
>cannot make contributions.  I am on a cash basis and only recognize
>income and expenses when they occur.  When I take a distribution, I
>record the distribution as income and an increase in my cash account. 
>This is probably not proper accounting but it works for me and I like
>the "kiss" system.
>
>Les
>
>  
>
Les, like you I am retired and so cannot make contributions to my 401K. 
You are missing my point.

ONCE UPON A TIME you made contributions, that IRA didn't appear by 
miracle. At that time (had you been keeping books) you had some gross 
income, some of which went into your checking account and some into an 
IRA, At  THAT time you would likewise have split that gross income 
between "current income" (taxable) and  "tax deferred income" -- OK, 
that's how it would have been with my 401K but with IRA contributions 
(lump amounts, not from salary) you might have looked at it differently 
as the IRA contribution is a "deduction" from gross income. Doesn't 
matter, you could have shown that with a transaction shifting from 
"current income" to "deferred income" anyway.

OK, maybe you began with gnucash afterwards, doesn't matter. HOW did you 
open your books? I bet your opening transaction had the balancing amount 
of that IRA lumped into equity. But you should instead had it as a 
"deferred income" under equity (a child). The equity total still 
correct, but now it becomes easy for you to "undefer" that income as you 
take a distribution. Understand? The distribution has TWO effects. One 
is to reduce the IRA balance as it increases money in your checking 
account. The second is to "undefer" that amount of income, reduce 
"deferred" and increase current income (your regular income account).

This is NOT a cash vs accrual thing.

Michael