Re: Newbie . . .

Hi, guys...

PMFJI, but as an accountant who just survived another tax season, I 
thought I'd just chime in here...

On 05/15/12 10:02 pm, Gordon Alley thus wrote :
> If it's a Roth IRA the contributions have already been taxed, so it's my
> understanding that you don't have to pay additional tax on withdrawal. For
> a traditional IRA (what I have), the contributions are pre-tax, so the
> distributions are taxed as ordinary income.
>
> -Gordon
>
> On Tue, May 15, 2012 at 8:06 PM, Edward A. Melia, C.P.A./Attorney<
> [email protected]>  wrote:
>
>> Randy,
>>
>> Generally, all distributions from IRAs are taxable income.  But, if you
>> set up the IRA accounts in MD at their current market values then, you have
>> already recorded the income (don't know where).  So, a $1,000 distribution
>> from an IRA is merely a reduction of that account and an increase in the
>> bank account containing the deposit.  If the IRA is not set up in MD then,
>> the $1,000 deposit needs to be offset by recording income of $1,000.
>>
>> I don't have your situation since I don't track my retirement accounts in
>> MD.
>>
In terms of IRAs (not factoring in SEPs, SAR-SEPs, Keogh plans, 401(k)s, 
403(b)s, or fully employer-funded plans, but just plain, vanilla IRAs) 
we really have three typical scenarios:

 1. Traditional IRA, funds contributed and deducted from current income
    (thus, pre-tax);
 2. Traditional IRA, funds contributed but not deducted from current
    income (non-deductible IRA contributions; after-tax);
 3. Roth IRA, funds contributed after tax

These are treated in different ways upon distribution:

 1. Principal & earnings are fully taxable when withdrawn;
 2. Earnings taxable when withdrawn; principal non-taxable;
 3. Earnings & principal non-taxable when withdrawn

>> On 5/15/2012 12:02 PM, Randy Tipton wrote:
>>
<snip>
>>> I do have some questions relating to how to properly set up monthly (set)
>>> distributions from two IRA accounts. I can set them up with reminders
>>> without any problem, what I have not been able to set them up where they
>>> will show  as income in my budget. As they are set up they do not appear
>>> on the homepage as income or the other income reports. Xfr of dividends from
>>> my other non-IRA accounts do show up as income.
>>>
>>> I am thinking this might be the way it is supposed to work since IRA
>>> distributions are not "income"?
>>>
Indeed, dividends (and interest) from investment accounts would 
correctly show as earnings (income). However, the problem with MD with 
regard to handling retirement funds is that if you "manage" the IRA 
funds as another asset account (or accounts, if you have several of 
them) of your own, you can't use the "transfer" feature, as this implies 
that you are "transferring" your own (read: after-tax) money form one 
account to another, instead of "recognizing" income from the withdrawal 
from a pre-tax account.

Hmmm...

If the funds are Roth funds (scenario 3, above), then this is a 
non-issue, as nothing *should* be income to you, anyway.

In fact, if we separate tax accounting from book accounting, it's all 
transfer funds, anyway, as these are still legally *your* monies, and 
you are simply *recognizing* income on what is taxable. That would be my 
way of handling it, anyway. The earnings on the funds while still held 
in the IRA(s) are income only to the IRA(s) and do not trigger tax unto 
themselves (though you might want to account for the *earnings* at that 
point, from a sheer "statement of financial condition" perspective (I 
would).

If you have reason to actually account for the recognition of income 
when you receive it from the IRA(s) - assuming you fall into scenario 2 
or 3, above, with some or all of your holdings - , then you'll/we'll 
need to figure out a way to *realize* the earnings in the IRA account(s) 
but not *recognize* the income until the funds are transferred out of 
the retirement account(s).

This is an interesting situation which I have not yet encountered. I'm 
curious as to what other ideas might be floating about.

Cheers

-- 
Lewis
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Lewis G Rosenthal, CNA, CLP, CLE, CWTS
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