Entering Retirement Income when it comes from another account

brett.foland's Avatar

brett.foland

20 Sep, 2018 03:50 PM

I searched for this answer but I'M STUCK

I have:
A BANK Category: RetirementSavings
A BANK Category: Checking
Each month an amount is transferred from RetirementSavings to Checking

Each month I create a transaction in the RetirementSavings category and use Checking for the category.
This transaction works perfectly for the balances in the two accounts.

HOWEVER:
How do I classify this amount as Income?

Thank you in advance for your help

  1. 1 Posted by -Kevin N. on 20 Sep, 2018 04:28 PM

    -Kevin N.'s Avatar

    Hi Brett,

    The income is reported when it is earned.

    Transfers do not count towards income as they have no effect on your net worth.

    Consider having $100 in your back pocket. You take it out and put it in your front pocket. You still have $100 in your pants. Nothing has changed regarding your net worth.

    One other point, just to clarify, the proper method of entering a transfer is to select the actual receiving account as the 'Category' of the transaction.

    In your example, entering the transaction into the Retirement Savings Bank account, you would select the actual Checking Account from the 'Category' field's drop-down list. (you may need to scroll up to the top of the list to access the actual Checking account)

    Entering the transaction in this manner debits the Retirement Savings account and automatically credits the Checking account.

    -Kevin N. (not a member of MD support)

  2. 2 Posted by brett.foland on 20 Sep, 2018 05:29 PM

    brett.foland's Avatar

    It's a bit different than you described. The Retirement/Savings account is
    basically the same as a 401k. When I draw from the account it is then taxed
    as income.

    So, when I enter the transaction, it is indeed a transfer but it is also
    then counted as my (Retirement) income. This is where I get stuck

    I need to reduce the Retirement account and increase the checking account.
    However, there is no way to classify this as income.

    I know there is a stupidly simple way to do this but I'm stuck

    Appreciate the quick response--thank you

    Brett

  3. 3 Posted by -Kevin N. on 20 Sep, 2018 08:55 PM

    -Kevin N.'s Avatar

    Hi Brett,

    Thank you for the clarification.

    Something that you can try is to create an Asset account. Name it IRA Income or anything that is informative for you.

    Transfer the distribution from the IRA account to the IRA Income Asset account. You can then transfer the funds from the IRA Income Asset account to the Checking account but assign the transaction a Tag. Maybe 'Taxable IRA Income'.

    You should then be able to generate an Income and Expenses report based on the Asset account, filtered by the Tag 'Taxable IRA Income'.

    There is a parameter in the options for the I & E report to 'Show transfers to or from non-Source Accounts'. Make sure that option is check marked.

    (I tested this out on a new empty test data file and it appeared to work as expected. I'm not sure if there may be unforeseen issues when trying it on a 'real world' data file.)

    -Kevin N. (not a member of MD support)

  4. 4 Posted by mhoggie on 20 Sep, 2018 09:03 PM

    mhoggie's Avatar

    another user,

    I think I understand your issue, I'll be doing the same in a few years.
    You need to track your distributions from pretax savings as taxable income.

    I have my 401k savings entered as an investment. All the money is in some kind of mutual fund so currently that account has no cash value, just investment value. So when I start taking any taxable distributions, investments will be sold and the proceeds will be distributed as if I sold stock except tax will be due on the entire amount. In MD, you can show the proceeds in the investment account, then transfer to checking, or just place the proceeds directly in your checking when you show the sell of the fund in your investment account. So, if I'm thinking it through correctly, you should be able to run reports against your investment account to show taxable proceeds from you fund distributions. Establishing the cost basis may be a bit tricky, but I don't think there is a need to show it as a normal income category.

  5. 5 Posted by brett.foland on 20 Sep, 2018 09:04 PM

    brett.foland's Avatar

    I’ll test drive this. Thanks tons for your help

    Sent from my iPhone

  6. 6 Posted by brett.foland on 20 Sep, 2018 09:06 PM

    brett.foland's Avatar

    This sounds like a solid idea. I’ll give it a go.
    Thanks for taking the time to reply

    Sent from my iPhone

  7. 7 Posted by dwg on 20 Sep, 2018 09:07 PM

    dwg's Avatar

    I'm a fellow user.

    Here is another approach.

    Create a category, you can call it 401K Drawdown or whatever suits.

    For the amount being removed from the retirement fund transfer it to this category. This takes care of reducing the amount in the fund.

    Then create a new deposit transaction as a normal split transaction (as you would do for a paycheck) for the same amount with lines for taxation etc and the final amount classified as Retirement income.

    So instead of using a transfer transaction you have replaced it with two transactions.

  8. 8 Posted by brett.foland on 20 Sep, 2018 09:21 PM

    brett.foland's Avatar

    Another possibility. Thank you for taking the time to reply.

    Brett

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