[GNC] Tax deferred account transfers suggestion

[Alex Aycinena]

>
> ---------- Forwarded message ----------
> From: Michael or Penny Novack <stepbystepfarm at comcast.net>
> To: gnucash-user at gnucash.org
> Cc:
> Bcc:
> Date: Tue, 6 Apr 2021 10:48:35 -0400
> Subject: Re: [GNC] Tax deferred account transfers suggestion
> On 4/5/2021 8:57 PM, David Carlson wrote:
> > David P,
> > What verb would you use to declare that transactions in or out of a
> > particular account should appear in a tax report as part of the total
> that
> > should appear, for example, on a certain line on form 1099-R from a
> certain
> > custodian. The tax schedule report assigns, associates, links or somehow
> > picks out which transactions create the list of transactions that should
> be
> > included on whichever line of whichever form to be reported to the U.S.
> > IRS.  The user should have created a certain income account to identify
> > cash moves from a tax deferred asset account to a current asset account,
> > which should appear on a certain 1099-R form, linked to that form in the
> > tax report, and those transactions appear on that line in the tax report.
>
> I am going to repeat. Not that simple. Distributions from a "regular"
> IRA would be simple (since all contributions were pre-tax). That is not
> true for a 401K which might have had most contributions pre-tax but
> MIGHT have also had post-tax contributions. All contributions to a Roth
> IRA are post-tax.
>
> That means all distributions from a regular IRA are taxable income.
>
>
I don't believe this is exactly correct. Contributions to IRAs with
post-tax, non-deductible dollars could be made in the past (maybe still can
be? I don't know). In the year of withdrawal, you use Form 8606 to
calculate what portion of that year withdrawals are taxable (i.e.,
corresponding to withdrawals of pre-tax contributions and earning thereon)
and what portion of that year withdrawals are not taxable (i.e.,
corresponding to withdrawals of post-tax contributions on which you have
already paid taxes at the time of contribution, thus avoiding double
taxation on that part at the time of withdrawal).

This may apply to other tax-deferred programs, as well. In any case, the
rules change at the whim of congress and whatever administration is in
place and, in my opinion, it would be a mistake for the program to be
designed to hard-code rules like that.


> Most distributions from a 401k are taxable income (but a portion of a
> distribution might not be). AFAIK, most administrators of a 401k will
> get the non-taxable money out first so only needing to cope with one
> mixed distribution and from then on entire distribution taxable. The
> statements you get for a 401k usually show what part (if any) of the
> contribution balance is post-tax.
>
> Most distributions from a Roth IRA are mixed, part taxable, part not. I
> do not know what administrators of a Roth do.  I don't know what
> statements from  a Roth look like.
>
> Michael D Novack
>
> PS: The 1099 is prepared by the plan administrator and sent to you
> annually. You aren't preparing the 1099 and sending to both you and the
> government. The payer does the 1099. You are the recipient.
>
>
>