[GNC] IRA/401K income detection

[Stan Brown]

On 2022-03-16 17:49, D. via gnucash-user wrote:
> But one of the big selling points of IRA/401Ks is that they earn
> money tax deferred (which I've also isolated into their own income
> accounts). How does Joe allocate the distributions-- or does it
> even matter? Each distribution is going to include a portion of
> deferred income and a portion of untaxed dividends (at least how
? I've captured the txns thus far). Is there a different way to
> manage those dividends?   

Were _all_ of your IRA or 401(k) contributions pretax money, or did you
pay income tax on any of them when you made the contributions? I'm going
to assume it's the former, which is the most common situation.

In that case, there is no need to keep separate track of dividends and
gain in asset value. As far as the tax code is concerned, it's all
ordinary income when you withdraw it, and there's no allocation of how
much is gains, how much is dividends, and how much is your original
contribution.

If you made any contributions that were _not_ deducted at the time, then
only a portion of your withdrawal is taxable. The basic idea is to
divide your original contributions by the current total value, then
multiply by the amount of the withdrawal, and that amount is
non-taxable. But it's more complicated than that: you have to keep track
of your "basis" from year to year, and file form 8606 each year you make
a non-deductible contribution or take any withdrawal. But still there's
no distinction between dividends and asset value gains.

Since you don't have to account for dividends for tax purposes in either
case, you're free to allocate the withdrawal any way you please. Or you
could drop the dividend account entirely, which is what I do.

> Yeah, I get that an accountant doesn't call this income, but frankly,
> I don't really care about the esoterica of accounting in this case. I
> care about what the government says is income. Accountants can yap all
> day long about how the IRA payouts aren't income; the IRS is still
> going to fine me if I don't pay up.

If you call a withdrawal income, then you're going to make a credit
entry to some income account. You will also make a credit entry to the
asset account for the amount of the withdrawal. There will be a
corresponding debit entry to Cash/Banks for the withdrawal. What will be
your corresponding debit entry to the credit entry for income?

-- 

Stan Brown

Tehachapi, CA, USA

https://BrownMath.com