Sale of IRA Mutual Funds as an Premature Distribution

[Milton Stern]

On Tue, Oct 27, 2015 at 10:45 AM, John Ralls <jralls at ceridwen.us> wrote:

> No, your account shouldn’t be in Equity. An IRA is definitely an asset and
> it’s not a separate entity from you. If it was it would need its own tax
> id, like a trust does, and you’d have to maintain its books in a separate
> GnuCash file and file a separate return for it.
>
> A withdrawal from an IRA isn’t an asset sale, it’s a transfer from the
> IRA’s cash account. Nor is it income, contrary to Mike Novak’s claim in
> that thread. The income events occurred when the securities in the IRA paid
> dividends or when you sold them for a gain. That income wasn’t taxable at
> the time, but you must recognize it as taxable when you make a withdrawal,
> according to some proration formula that I’ll leave as an exercise for you
> to look up. GnuCash can’t do the proration part for you, you’ll need to
> maintain a spreadsheet separately for that calculation.
>
> It might be wise to follow David’s suggestion to get an accountant to help
> with setting this up to make sure you do it right,
> but my non-accountant instinct is to have a non-taxable “Deferred Income”
> account that collects the gains, dividends, and so on inside the IRA, and
> when you make a withdrawal you would transfer from that Deferred Income
> account to an ordinary income account that you would use for calculating
> your tax liability. Any penalties for early withdrawal or insufficient
> withdrawal would be a separate expense.
>
> Regards,
> John Ralls
>

Thank you John.

This makes a lot of sense.

And yes, when it comes to IRAs, especially Premature Distributions, I
intent to let the accountant hash it out.

Thanks again,

Moshe

-----

Milton (Moshe) Stern, MD
drmoshe5 at gmail.com

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