[GNC] Accounting FOr Beneficiary Income

[Stan Brown]

On 2020-02-01 00:05, Dave Gilmore wrote:
[His mother died on 5 Jan of this year, and he was her sole beneficiary.
Trying to accouynt for his takeover of her IRA.]

> She passed on the 5th of January this year. She had already declared a
> specific amount she was going to withdraw for this year and I have to
> keep that going. 

Under the SECURE Act of Dec. 2019, I don't think you have to. But it
certainly does no harm.

> After the year is up I am going to adjust the
> disbursements to fit my financial needs for my current season of life.
> Right now, I plan to take most of it and put it into a Roth as it is
> disbursed. This is before I have had any real planning meeting with the
> advisor, mind you, so that isn't set in stone

I think there may be tax advantages to doing a direct rollover from a
traditional IRA to a Roth, as opposed to taking the money yourself and
paying it into a Roth. But I am not sure about that.

Because the origin of the money was an inherited traditional IRA, I
think you will still need to drain the resulting Roth within ten years.
Your adviser can give a solid answer to both of these questions.

> Right now, the transactions go as follows:
> 
> IRA Account -> Brokerage Checking Account (some requirement - I forget
> why right now) -> Personal Checking Account (later some of this will go
> into a Roth as well).

At Vanguard, everything goes through the "settlement fund", and I expect
it's the same at most brokerages. That exactly matches the flow you mention.

> IRA Account -> Federal Taxes (still working on the state tax estimate)

Might I suggest that you have 20% Federal tax withheld from your IRA
withdrawal? This is your option; they probably won't do it
automatically. You can also choose to have some amount of state tax
withheld in many cases. The advantage to you is that you're less likely
to have to file estimated taxes. The slight disadvantage is that you may
find you've had to much withheld. But you get it back when you file your
2020 taxes, and since interest rates are low you don't lose much on the
float.

> I guess my hangup was that I felt I needed to show it as income since
> taxes were being taken out as part of the disbursement. But - thinking
> it through with your help - it's not like this money is coming from a
> 3rd party like an employer or a client. It's already my money, so it's
> an asset right?

Exactly right. It would be income if coming from someone else, but
you're paying yourself so it's not. The income event occurred when the
estate transferred your mother's IRA to you.

>> Here's my answer to a related question that you didn't ask:
>> Your mother's IRA, like your other investments, will grow or shrink over
>> time. Those changes don't affect your income tax. But over time, the
>> balance in GnuCash Assets:Investments:Mother's IRA will get further and
>> further out of step with the balance in the actual account ...

> Thanks for this. You're right - it was a question I knew needed an
> answer but hadn't gotten that far yet

Great -- glad I anticipated!

>> Maybe it bothers you that your income on your tax return doesn't match
>> your income in GnuCash?

> Something like that. I was picturing having to report where all my money
> came from for the year. So, because I was getting money from something
> and paying taxes on it I thought that meant the transaction should be
> classified as income. But, it sounds like it's just an account transfer
> that costs me taxes to do so to speak

> Thank you for your very well thought out response

Happy to help! Questions on this mailing list are often more accounting
or tax questions than programming questions. I'm no financial adviser or
tax adviser, but I've done a fair amount of research matching my own
personal situation, and yours had something in common.

BTW, it's very nice that your mother had listed a beneficiary on her
account. Mine did not, so while it ended up being divided by her estate,
it took a year and a half rather than a couple of weeks.

-- 
Regards,
Stan Brown
Tompkins County, New York, USA
https://BrownMath.com
http://OakRoadSystems.com