[GNC] Recommended Method of Entry for IRA Distributions

Thu Jan 12 10:58:50 EST 2023

Not being qualified as a CPA, I am loathe to advise on accounting 
matters (as opposed to how to do it using gnucash rather than pen and 
ink on paper)

But THIS previous response should go a long way toward setting you on 
the right track because it discusses the EXACT reverse problem (when the 
contribution was made) and once you consider that, how to handle the 
distribution should make sense. Personally I am not keeping our 401k ON 
the books, but if I had chosen that option (for 401k/IRA accounts) this 
is what I would have done.

I would remember that accounts of type income are really temporary 
accounts of type equity. I would use that, putting an account for 
"deferred income" under equity. It would be this I would use as the 
credit side when making a contribution. I will ignore the added 
complexity of payroll deduction and assume you are putting money in form 
the bank account. So the obvious part is debit IRA and credit bank 
account but ALSO debit income and credit "deferred income". And if I am 
marking a 401k/IRA account to market each year, debit IRA and credit 
"deferred income" << note that such increase is not an unrealized 
capital gain when in an income deferral account >>

Then later when taking a distribution, debit cash and credit the IRA for 
that amount but ALSO debit deferred income and credit income (you have 
undeferred that much)

But that's just how I would do it, not advice.

Michael D Novack

PS --- If you had an existing IRA account when you started with gnucash 
and used the wizard to enter with a balance (the credit going to the 
opening balance in equity) and yo decide to use a "deferred income" 
account as described above, you can fix that by creating the account and 
transferring from starting balance.

On 1/12/2023 1:25 AM, David T. via gnucash-user wrote:
> Moshe,
>
> This issue has come up many times over the years, for the very reason you raised: a direct transfer from the IRA asset account to your Checking at account won't show as income in reports.
>
> The best way I've seen for how to handle this requires that your initial pay records isolate the income you diverted to the IRA account. Technically, the income you sent to the IRA is separate, and should be categorized as "deferred income."
>
> In my books, that's meant that my paycheck entries have separate lines for the income that was sent to the IRA. So if I have a paycheck for $1,000, and send $50 to the IRA, the entry was:
>
> Income:W2 $950 -> Checking
> Income:IRA   $50 -> IRA Asset
>
> (Note that this will match your W-2 at the time)
>
> When you take the distribution, you create one transaction for the transfer from the IRA to Checking, but then you create an extra transaction (or extra splits, if you prefer), which transfers the distribution amount from Income:IRA to Income:Retirement Distributions. This second account should be assigned as a taxable account. Then it will appear on the TXf report. You can also select just that account on income statements.
>
> ⁣David T. 
>
> On Jan 12, 2023, 6:53 AM, at 6:53 AM, Milton Stern <drmoshe5 at gmail.com> wrote:
>> Hi,
>>
>> Please see below ********
>>
>> Moshe
>>
>> On Wed, Jan 11, 2023 at 7:06 PM R Losey <rlosey at gmail.com> wrote:
>>
>>> Hello.
>>>
>>> Assuming you take out $5,000 and they withhold 10% ($500), I would
>> use a
>>> split transaction... sell $5000 worth of the mutual fund, add $4500
>> to your
>>> bank account, and $500 to federal income tax paid.
>>>
>>> I apologize for not using "debit" and "credit" terms, but I'm not
>> sure I'd
>>> get them right.
>>>
>> ******** Agreed. The component that I am having trouble with is the
>> Pre-Tax
>> IRA Distribution component. Because it is a Pre-Tax IRA, the
>> distribution
>> is taxable as income.
>> ********The direct "sell $5000 worth of the mutual fund, add $4500 to
>> your
>> bank account" direct transaction will not show up in Income Reports.
>>
>>
>>> You can track them however you wish, but the above is how I would do
>>> them... well, except, I never have the mutual fund withhold taxes; I
>> pay my
>>> own taxes quarterly.
>>>
>> ****** New for 2023. IRS requires the brokerage to withhold taxes from
>> IRA
>> Distributions. Last year you could specify 0% withholding.
>> ****** They don't make it so easy this year. It is sort of a double
>> hit.
>> Even if you get it back as a tax refund, you can't put it back
>> (Rollover)
>> into the IRA to earn tax free.
>>
>>
>>>
>>> On Wed, Jan 11, 2023 at 4:35 PM Milton Stern <drmoshe5 at gmail.com>
>> wrote:
>>>> Hi,
>>>>
>>>> What would be the recommended method of Entry for an IRA
>> Distribution?
>>>> The Distribution is for a personal IRA (not Roth).
>>>> The IRA is of Mutual Funds.
>>>>
>>>> The Mutual Fund is in Assets > Investments - Retirement > Brokerage
>>> etc.
>>>>> etc.
>>>> Since this is taxable income, I need to track withholding (Federal)
>> + Net
>>>> Distribution to a Checking Account (Assets > Current Assets).
>>>> No Commission fees are applicable, but it would be nice to know
>> where/how
>>>> they would be tracked.
>>>>
>>>> Thank you in advance,
>>>>
>>>> Moshe
>>>> _______________________________________________
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>>>
>>> --
>>> _________________________________
>>> Richard Losey
>>> rlosey at gmail.com
>>> Micah 6:8
>>>
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