[GNC] Roth IRA conversion

[David T.]

Michael, 

While I fully respect your answer, with over 45 million IRA accounts in the US (according to one source I found online), this is a pretty common circumstance. It should be possible for basic guidance to be given by *someone*, without all 45 million consulting an accountant. I personally don't know the answer.

A thread from April 2021 included the following advice (which I've edited slightly) :

Create income accounts:

- Non-Taxable Income - 401(k) Contributions (not tagged in Tax Report Options)
- 401(k) Withdrawals - Contra (not tagged in Tax Report Options), and
- Taxable Income - 401(k) Withdrawals (*is* tagged in the Tax Report Options)

At the time of the contribution you enter:

Dr. 401(k) Asset Account
Cr. Non-Taxable Income - 401(k) Contributions

Your income statement would include the amount as income but your tax report would not.

At the time of withdrawal you enter:

Dr. Non-401(k) Asset Account
Cr. 401(k) Asset Account
Dr. 401(k) Withdrawals - Contra
Cr. Taxable Income - 401(k) Withdrawals

Your income statement would not include the withdrawal as income (since the last two entries cancel each other) but your tax report would.
-----------

I won't vouch for the legality or validity of the approach, but it seems to make sense to me, and it appears to allow the user to have books that match what they will see from their financial institution. 

⁣David T. ​

On Dec 19, 2022, 6:26 PM, at 6:26 PM, Michael or Penny Novack <stepbystepfarm at comcast.net> wrote:
>On 12/18/2022 10:20 PM, Fred Tydeman wrote:
>> For a USA person, when I move cash from a regular IRA (tax deferred
>> account) to a Roth IRA (tax free account), besides the movement of
>the
>> cash, I need to also somehow show that the cash moved is considered
>> income.  What should be the other side of the income pair?
>
>This is just one example (a special case, though a biggie in terms of 
>amount) of the more general question of "imputed income". In other 
>words, where the IRS considers that you have received income but no 
>actual money coming in.
>
>I will give a different example that probably affects more people 
>(although usually by a small dollar amount) to show how IT might be 
>handled. It won't be of use to Fred, except does point out that an 
>accounting question, not a gnucash question.
>
>Employers are allowed to pay the premiums of group term insurance for 
>employees (it is a commonly offered benefit) and they usually offer one
>
>year's salary (the employees might have the option of more years, but 
>THEY  pay that portion of the premium, payroll deduction). However the 
>IRS considers just the premium for the first $50,000 of coverage to be
>a 
>tax free benefit. So if the employee's salary is $60,000 and they opt 
>for three year's salary ($180,000) they pay the premium on $120,000 of 
>that by payroll deduction, the company pays the premium on $60,000 (the
>
>benefit) and the IRS considers that the employee has "imputed income"
>in 
>the amount of the premium on $10,000 of the coverage.
>
>What's the other side of the transaction? I'd make that "insurance 
>expense" (same place that the payroll deduction for the extra years
>went)
>
>Fred, you need professional accounting advice on this. It's not a 
>gnucash question in the sense you;d have exactly the same question were
>
>you keeping your books the old fashioned way, pen and ink on paper.
>
>Michael D Novack
>
>
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