[GNC] Recommended Method of Entry for IRA Distributions

[Michael or Penny Novack]

On 1/14/2023 1:07 AM, David T. wrote:

> .........
> As for counting as income, most paychecks I've seen list the 
> employee's gross income at the top, with contributions to tax-deferred 
> accounts listed as deductions from the gross amount. This is why I 
> placed deferred income under income; the income that my employer lists 
> at year end includes this deferred income. I can, I imagine, chalk 
> this up to another case of "their books, my books" (as in, "On their 
> books, it's income; on my books it's not."), but I'd be happy to 
> understand a little better.
>
> The case of an IRA can be even more confusing, in that a person can 
> make IRA contributions entirely separately from income transactions 
> and have those contributions affect income at tax time.
>
> David T.


This is accounting, not a matter of how to do in gnucash.......

You are too focused on the term "income"

We'll back a few years (decades) to when I was getting a salary check. 
There would of course be a gross amount,  but notice I am not saying 
"income". There would be various deductions like you might expect, tax 
withholding, insurance, etc. But there could also be additions! For 
example, I was carrying 5 years group term, paying for four (deduction) 
but also receiving "imputed income" for the first year (the company paid 
for that, but the IRS considers the premium for coverage >$50,000 to be 
income). BUT one of the deductions from gross was money going into the 
401k (NOT counted as current income) and the company matched that (also 
no counted as current income). THAT is what a 401k/IRA is all about, 
deferring income.

Standing accounts ---- in the old days of pen and ink on paper the P&L 
was created in the "closing the books" operation. All the income and 
expense accounts would be closed into an account called "Profit and 
Loss" and then that account closed to equity by whatever "net profit" or 
"net loss" brought the Profit and Loss account to zero. AT THIS POINT 
all the temporary accounts (like income and expense accounts) would have 
zero balances and we are ready to begin the net accounting period. The 
"standing accounts" are the accounts that were not closed to zero in 
this process (accounts of types asset, liability, and equity.

You do what you want. But I would be considering "deferred income" to be 
a standing account. I would not expect its ever increasing balance 
(during the contributing and waiting years) to be appearing in total 
income each year. It eventually does appear in income for a current year 
when distributions are taken later in life. Because income accounts are 
"really" temporary accounts of fundamental type equity, under equity is 
where I would be keeping it.

BUT --- I am not an accountant. Do whatever YOUR accountant advises.

Michael D Novack