[GNC] I don't understand this IRA distribution solution

[D.]

Looking at that thread, I believe that the crucial points are these:

1) You need to isolate the tax deferred income as you go. So, for example, you have $2000 gross income on a paycheck, of which $250 is deposited into your IRA. The payroll transaction will need to have separate entries of $1750 Income and $250 deferred income, each going into their asset account. 

2) When you take a distribution, there will be two balanced entries-- one from the IRA asset account to your checking account, and a second one with the same amounts from the deferred income account to your taxed income account. So, 
$250 cr IRA, $250 dr Checking
$250 dr Taxable $250 cr deferred income

Note that I am not an accountant, and I may have it wrong (especially the whole dr/cr thing)

But that's how I understand that. 

HTH,
David T.



-------- Original Message --------
From: Morris Beavers <atomicpix86 at gmail.com>
Sent: Mon Jan 17 17:16:07 EST 2022
To: gnucash-user at gnucash.org
Subject: [GNC] I don't understand this IRA distribution solution

I am an ex-quicken user, with no formal accounting training (only
gnucash manuals).

I hope to track money between my banking accounts, identify who is
receiving payments, and budget (income >= expense).

I started by using the wizard for common + investment accounts.

I didn’t see a problem until my investments generated an IRA distribution
with money to federal, state, and checking. I didn’t want to record the
federal, state deductions as an actual cash expense so I created an
“Investment Expense” root expense account to track the payments.

Now a new year has started and I’m trying to reuse my account tree but I
can not identify why the budget income is not reporting the sum of the
income sub-accounts.

Thinking my IRA distribution solution was the root of the problem I found
in gnucash-user “Accounting Treatment of Taxable IRA Distributions” thread.
There is a statement of a solution which I do not understand, “How did you
open your books? I bet your opening transaction had the balancing amount of
that IRA lumped into equity. But you should instead had it as a "deferred
income" under equity (a child). The equity total still correct, but now it
becomes easy for you to "undefer" that income as you take a distribution.
Understand? The distribution has TWO effects. One is to reduce the IRA
balance as it increases money in your checking account. The second is to
"undefer" that amount of income, reduce "deferred" and increase current
income (your regular income account).”

Would someone please explain this solution as accounts and transactions?

Thanks, very much,
Morris
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