[GNC] Accounting FOr Beneficiary Income

[Stan Brown]

Hello, Dave! My sympathies for your loss.

You say "IRA", so I assume you're talking about US law here.

> 1. She had a traditional IRA account that she was receiving

> disbursements from. I worked with the broker and just rolled all of
> the
 accounts into my name.

Hopefully you did that in your name _as_beneficiary_ of your mother.

"If the inherited traditional IRA is from anyone other than a deceased
spouse, the beneficiary cannot treat it as his or her own. This means
that the beneficiary cannot make any contributions to the IRA or roll
over any amounts into or out of the inherited IRA. However, the
beneficiary can make a trustee-to-trustee transfer as long as the IRA
into which amounts are being moved is set up and maintained in the name
of the deceased IRA owner for the benefit of the beneficiary."

Source:
https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-beneficiary

So the account title needs to be something on the order of "Emily Jones
IRA (deceased February 2, 2016) for the benefit of Riley Jones beneficiary."

Source of example: Jane Bryant Quinn, _How_to_Make_Your_Money_Last_
(2016), pp 185-187. Quinn warns "you have to get the paperwork right!
One small slip and the shelter will collapse, forcing you to take the
money (and pay any taxes) all at once."

If you got competent advice and did it right, great. If you didn't, I
don't know whether this can be fixed but I would consult a tax adviser,
pronto.

I'm guessing that your mother died in 2019? If by any chance she died in
2020, the above rules are still in effect but you no longer use the
life-expectancy tables to compute a Required Minimum Distribution.
Instead, you have 10 years to drain the IRA, on whatever schedule you
choose.

Source:
https://www.investopedia.com/terms/i/inherited_ira.asp

Now on to your accounting questions ...

> So, now I have this money that was given to me and I didn't pay
> into.

Create a new asset account, in the same branch as your other long-term
investments: Assets:Investments:Mother's IRA. Your transaction will
debit that account by the value of the IRA. You're not required to
follow Generally Accepted Accounting principles, so the credit account
in that transaction is up to you. Here are some options:
* Your main equity account.
* Equity:Extraordinary Income
  (one account for this and other large one-time entries)
* Equity:Inheritance(s)
* Income:Inheritance(s)
* Income:Miscellaneous

I don't see any need to consult a CPA about this. As long as the entries
are clear, you're not legally required to follow any particular form.

I personally like to restrict my Income and Expense accounts to ordinary
income, items that occur in the course of my customary life activities,
items that would appear in a budget. I have to buy groceries every week,
so Groceries is an ordinary Income account on my books. But it would be
absurd to budget for an inheritance, so I prefer to record that in an
equity account rather than an Income account.

> I have to continue receiving disbursements from this
> account every year. Because this is a traditional IRA, I have
> to pay taxes on this income. Because of this, should I set the
> IRA account as some sort of equity that I can get income from
> and pay taxes on?

No. The IRA is an asset, just like your own IRA or 401(k) or your bank
account. When you take money from it, you debit Assets:Cash or
Assets:Bank Accounts, and credit Assets:Mother's IRA. You can see that
makes sense: you are converting one type of asset into another type of
asset. You can't turn equity into an asset, at least not in this context.

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 at the
brokerage. Since there's no need to keep track of profit and loss in an
IRA, I resolve this by checking the balance at Vanguard every three
months, and then I debit Assets:Investments:My IRA and credit
Equity:Unrealized Gains/Losses. (If the IRA is down, the credit and
debit are reversed. If you enter negative numbers, GnuCash does that for
you automatically.)

How to record taxes? Basically the same way you record other taxable
events, like getting a paycheck. This is already pretty long, so I'm
going to skip that.

> I tried setting it up as an investment asset,
> but I couldn't then make an income transaction.

I don't understand what you mean here by "couldn't" -- couldn't figure
out what you wanted to do? couldn't make GnuCash do it? other?

> I think I need to reflect this as income due to the taxes being taken
> out. Otherwise it would just be a transfer between asset accounts.
But it's _not_ income, any more than withdrawing money from your bank
account is income. It _is_ what you say a moment later, a transfer
between asset accounts.

Maybe it bothers you that your income on your tax return doesn't match
your income in GnuCash? But that's quite usual. Heck, even your salary
income in GnuCash and on your paychecks doesn't match your income on
your tax return. Why? because the money withheld for your 401(k) or IRA
is income to you but is not taxable income as far as the IRS is
concerned. (Ditto the "employer match", if you work somewhere where if
you contribute to your IRA or 401(k) they add X% from company funds.)

> 2. As I am closing out some of her accounts (utilities, insurance,

> cable, etc) she is being issued a refund. Which is being paid to me.

> Should I just list this as "other income". Technically it is a refund,

> but I did not make the original expense to be refunded for

Debit to  Assets:Cash (or bank account)
Credit to Equity:Inheritance(s), or whatever account you credited for
the amount of your mother's IRA

Unless your mother's estate is large enough that you need to be
concerned with Federal or State estate tax, these refunds won't flow
into taxes.

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