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Author
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Topic: IRA and Keogh Distributions
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Marcus Aaron II
Member
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posted 12-25-2003 12:15 PM
  
How do you correctly post a distribtution of cash from an IRA or Keogh account that will (1) show a taxable distribution appearing in its proper place on the 1040 tax report and (2) show a reduction of the equivalent amount in the balance of the appropriate IRA or Keogh retirement account. This is not covered in the manual, nor has a prior similar question posted 12/15 by another user been answered.
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David
Administrator
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posted 01-07-2004 05:05 PM
Thanks for your excellent question. IRA, Keogh and other retirement account distributions that need to be taxed need to show "phantom" income on your tax return. That is income reported strictly for tax purposes, but it does not change net worth. This is very similar to what happens when you convert a regular IRA to a Roth IRA pre-retirement. That Roth situation is covered on pages 531-537 in the Financial Navigator Version 8.0 Reference Guide Volume 2, and in the FN 8.1 Help file (Search the Index for Roth).
To post an IRA or Keogh distribution:
- Record the transaction to move money from your retirement account to your cash account as you would for of any asset. This decreases your IRA/Keogh balance and increases your cash (or checking or whatever) balance, but does not have any taxable effect. You may want to create a general journal account like IRA General Journal and enter the transactions in it so all retirement account transactions are all in one place.
- Set up accounts to handle the phantom income:
| | - Open the Master Chart of Accounts.
- Add a new income account in the Other Income group. Give it a name like IRA distribution – taxable. This account will be used to record the phantom income.
- Assign the new account the IRA Taxable Distribution tax code.
- Add a second account to the Other Income group. This contra account will offset the phantom income, so net income is always zero. Name it something like IRA distribution – offset.
- Assign this second account the No Tax Effect tax code.
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- Record the phantom income in the General Journal:
| | - Enter a Payee/Payor something like IRA distribution.
- Select Multiple Distribution for Account.
- Enter any comments in the Memo field on the first line of the multiple distribution.
- Enter the phantom income account on the second line of the multiple distribution, perhaps IRA distribution – taxable.
- Credit the phantom account for the amount of the distribution.
- Enter the offsetting account on the third line of the multiple distribution, perhaps IRA distribution – offset.
- Debit the offsetting account for the amount of the distribution.
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- Display the Form 1040 Summary tax report and verify the IRA taxable distribution line in the Income section shows the correct amount.
Note these steps only apply to taxable distributions. Non-taxable distributions, like form a Roth IRA, are handled simply as a sale of an asset, with no tax effect.[This message has been edited by David (edited 02-02-2004).]
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BillBMay
Member
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posted 01-07-2004 07:11 PM
Thanks for the answer. Now how do I transfer stocks from the IRA to the regular account? Bill
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