[GNC] IRA/401K income detection

[Michael or Penny Novack]

On 3/13/2022 10:28 PM, David G. Pickett via gnucash-user wrote:
> I understand that one characteristic/weakness of the double entry system is that you cannot tag a transfer with an income or expense account.  Still, accounting programs help prepare 1099R's, so there must be a way.  Keeping deferred tax items a separate set of books would make income visible but assets would be divided.
>
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> It'd be nice if there was some sort of account tax tag so transfers from pretax/tax deferred accounts to normal accounts would show on the tax report.
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> My traditional 401k/IRA stuff is pure pretax, which I suspect is the overwhelming norm.  Of course, my Roth is tax free!  I am just too old/retired to put much into it!

The issues might be clearer if you stepped back a bit. You have the 
IRA/401k in your books as an asset. HOW did this amount get there? What 
were all the parts of THOSE transactions? Hint: do your books include a 
"deferred income" (say under equity). If not, how did you enter the 
transactions of a contribution? (not just a transfer between assets but 
also in the same amount a transfer between income and deferred income). 
And how did you record the market increases of the IRA/401K except as a 
debit to the 401k and a credit to "deferred income".

That's why some of us would NOT choose to have the 401k on our books as 
an asset. It's a "right" (to NOT receive income now but instead to 
receive it plus whatever it has earned over time at some later date). I 
think what has you confused is that it seems to have a clear "amount" 
associated with it so let's shift to a different sort of asset that is a 
right, an annuity.

Its book value? That whatever you paid for it. That stays the same until 
the annuity is no longer in effect under the terms of the contract. 
Whoever is then keeping your books (winding them up) would write it off 
against equity just like any other "loss" that is is not first processed 
through expenses. Meanwhile it is a source of "rents" (series of 
scheduled payments) that are debits to cash and credits to income as 
received. Not transfers from the "value" of the annuity which best 
remains unchanged.

Returning to your IRA/410k problem where you DO have it on your books as 
an asset with defined value. I suspect that was opening books with 
"starting values" but not having an account for "deferred income" (would 
have been for the same amount, opposite sense, since you say 100% before 
tax money  it's all deferred income). You can fix that (split that 
amount off from starting equity to a "deferred" account under equity. 
Now your distribution transaction can work (debit both cash and deferred 
income and credit IRA and income -- all the amount of the distribution)

Michael D Novack