[GNC] How to treat IRA distribution as income

Fri Dec 27 18:04:49 EST 2024

This is what I do.
And as to Michael"s subsequent question of how I book growth in the IRA or
401(k), continue to credit deferred income each year as the account grows
(debited income in 2020 when it fell).
Eventually (not yet), if I take taxable distributions will debit back the
deferred income and credit this year's taxable income as RL eloquently
explained.

Now to get net worth more accurate, when these accounts grow, I also credit
a deferred tax liability account for the (eventual) taxes I will need to
pay. And debit an income:deferred taxes account for the offset. Now you can
choose if you want to go that far as it requires four split lines every
time you amend for growth.

On Fri, Dec 27, 2024, 1:27 PM R Losey <rlosey at gmail.com> wrote:

> I absolutely agree with you that using a dummy account doesn't "feel
> right"... when I have situations that I don't fully understand, I run into
> that a lot.
>
> I can think of three options:
>
> 1) Make no changes and quash the "doesn't feel right" feeling
>
> 2) Consider that in reality, you are just transferring money from one
> account to another account, and so, there really isn't "income" in the
> actual sense of the word. If you choose to go this route, your RMD will be
> a split transaction with the money going straight into checking, federal
> tax, and state tax: you won't use the income account and won't need the
> dummy account
>
> 3) If, however, you want to record the distributions for tax purposes, then
> consider: The contributions to your accounts were deferred income; when you
> withdraw from the retirement account, you are decreasing that deferred
> income. (as a side issue, when your retirement accounts pay dividends or
> interest, how do you record them? I record them as "Equity:Deferred
> Income:Dividends")
>
> So, supposed I take a distribution of $1300 from my traditional IRA, with
> $200 withheld for federal tax and $100 withheld for state tax (note: I just
> made up the tax amounts to make the math easier - they are not intended to
> reflect reality)
>
> The transaction would look like
>        Traditional IRA:   withdraw (credit) $1300
>        Federal Tax withheld: increase (debit) $200
>        State Tax withheld: increase (debit) $100
>        Checking account: increase (debit) $1000
>        Equity:Deferred Income: decrease (debit) $1300
>        Income:Taxable:IRA Distribution:Traditional IRA: increase (credit)
> $1300
>
> Under taxable income, I have a sub-account under "IRA Distrubtion" for each
> account from which I take a taxable distribution -- because it makes my
> taxes easier to estimate before I get the official documents. You could
> just enter every withdrawal as an "IRA Distribtion". But since I pay
> quarterly estimated taxes, I want to keep a close check on the tax
> situation.
>
> As you can see, you are very close with your "dummy account" approach.
>
> I hope that this helps.
>
>
> On Fri, Dec 27, 2024 at 10:37 AM Bob Plantz <rgplantz at outlook.com> wrote:
>
> > It's a traditional IRA. I also have a 403(b). I'm taking required minimum
> > distributions from both.
> >
> > I have an asset account and a "dummy" account for each. When I take an
> > RMD, I create an income transaction that shows where the money goes:
> > checking account, federal withholding, and state withholding. Then I
> create
> > a withdrawal in the asset I'm taking the RMD from and deposit that
> > withdrawal in the corresponding dummy account.
> >
> > This hack seems to work, but it doesn't feel right to me because it seems
> > to violate the double-entry principle.
> >
> > ________________________________
> > From: Stan Brown (using GC 4.14) <stan+gc at fastmail.fm>
> > Sent: Friday, December 27, 2024 8:13 AM
> > To: Brad Morrison <bradmorrison at sonic.net>; rgplantz at outlook.com <
> > rgplantz at outlook.com>
> > Cc: gnucash-user at lists.gnucash.org <gnucash-user at lists.gnucash.org>
> > Subject: Re: [GNC] How to treat IRA distribution as income
> >
> > On 2024-12-27 00:35, Brad Morrison wrote:
> > >
> > > This may seem basic, but is your IRA
> > > (
> >
> https://na01.safelinks.protection.outlook.com/?url=https%3A%2F%2Fen.wikipedia.org%2Fwiki%2FIndividual_retirement_account&data=05%7C02%7C%7C68a362b3cb0f4e2f12af08dd26916130%7C84df9e7fe9f640afb435aaaaaaaaaaaa%7C1%7C0%7C638709128013877626%7CUnknown%7CTWFpbGZsb3d8eyJFbXB0eU1hcGkiOnRydWUsIlYiOiIwLjAuMDAwMCIsIlAiOiJXaW4zMiIsIkFOIjoiTWFpbCIsIldUIjoyfQ%3D%3D%7C0%7C%7C%7C&sdata=%2FhC5VDKIUzCuCUqnOWZ5goI3WTek4GABrgJhLpnljc8%3D&reserved=0
> > <https://en.wikipedia.org/wiki/Individual_retirement_account>)
> > > traditional or Roth?
> > >
> > > IRAs can be taxed at the contribution stage or at the withdrawal stage.
> >
> > Or both. If you ever made nondeductible contributions to your
> > traditional IRA, part of each distribution will be taxable and part will
> > be nontaxable.
> >
> > If you withdraw too soon from your Roth IRA, part of the withdrawal may
> > be taxable, and there may be penalties as well.
> >
> > See Publication 590-B for detailed rules on both of these:
> >
> >
> https://na01.safelinks.protection.outlook.com/?url=https%3A%2F%2Fwww.irs.gov%2Fforms-pubs%2Fabout-publication-590-b&data=05%7C02%7C%7C68a362b3cb0f4e2f12af08dd26916130%7C84df9e7fe9f640afb435aaaaaaaaaaaa%7C1%7C0%7C638709128013896351%7CUnknown%7CTWFpbGZsb3d8eyJFbXB0eU1hcGkiOnRydWUsIlYiOiIwLjAuMDAwMCIsIlAiOiJXaW4zMiIsIkFOIjoiTWFpbCIsIldUIjoyfQ%3D%3D%7C0%7C%7C%7C&sdata=DoXCqvWVE2cRrIJerRNNZd5us%2B7n1gz2q4lGMHb1cCE%3D&reserved=0
> > <https://www.irs.gov/forms-pubs/about-publication-590-b>
> >
> > Stan Brown
> > Tehachapi, CA, USA
> >
> >
> https://na01.safelinks.protection.outlook.com/?url=https%3A%2F%2Fbrownmath.com%2F&data=05%7C02%7C%7C68a362b3cb0f4e2f12af08dd26916130%7C84df9e7fe9f640afb435aaaaaaaaaaaa%7C1%7C0%7C638709128013910691%7CUnknown%7CTWFpbGZsb3d8eyJFbXB0eU1hcGkiOnRydWUsIlYiOiIwLjAuMDAwMCIsIlAiOiJXaW4zMiIsIkFOIjoiTWFpbCIsIldUIjoyfQ%3D%3D%7C0%7C%7C%7C&sdata=UvUEJwPyu59MC89EO%2FVSk2W%2B1QnVHFQl4bxja7UN17U%3D&reserved=0
> > <https://brownmath.com/>
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> --
> _________________________________
> Richard Losey
> rlosey at gmail.com
> Micah 6:8
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