How to Post a RMD from an IRA

[Paul Marriott]

I have a taxable investment account and an IRA.  Every month RMD (required minimum distribution) is taken from my IRA and added to my investment account after Tax withholding.  I am not sure how to post this transaction.  Right now I have:

2006-01-02 * "RMD from IRA"

  Assets:IRA               -100 USD

  Expenses: Taxes.       20 USD

  Income:RMD.              80 USD

2006-01-02 * "Transfer from IRA"

  Assets:InvestmentAC.   80 USD

  Income:RMD.                   -80 USD

The problem I want to record RMD as income, but with the above postings, the income account is net zero.  What am I doing wrong?  Or maybe I just cant record it as income, although it will appear as income on my Tax Return.

[Martin Blais]

Technically they're not income, they're distributions. Taxable distributions. I wouldn't book them under an income account.

This is one of those cases - there are many more - whereby you want to count the amounts incoming to that RMD account.

There are two ways I've handled this in the past: (a) by mirroring (with a plugin) the amounts posted to RMD to two distinct sets of accounts, (b - simpler) by issuing a query to count them up over a period of time (the amounts don't automatically update any account).

 

[Martin Blais]

Thinking further on this, this problem is so common that it deserves some new abstraction (beyond just solving the issue with a plugin). I'm not sure what that would look like, but some way to automatically update the value of a pair of accounts based on the flows into a third one is what I'm thinking about.

[Paul Marriott]

what I am doing right now is adding a tag so I can at least track RMD's.  Its really a deferred income stream, but since it was received in the past before I started using beancount, I'll just tag them so I can collect the year end amounts to check and/or include on my tax return.

2006-01-02 * "RMD from IRA" #RMD

  Assets:IRA                            -100 USD.  ; from tax free IRA account (cash)

  Expenses: Taxes                     20 USD.  ; to Uncle Sam - IRS Witholding

  Assets:InvestmentAC            80 USD   ; to taxable brokerage account (cash)

[Martin Blais]

You could try posting like initially to a transfer account, and then a query like

select ... where account ~ ':RMD' and number > 0

Alternatively, you could write a script that detects transactions with IRA and RMD postings and highlight those.

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[Jake Drum]

I think this depends on how you want to keep your books - either recognizing income in the year it is received, or waiting until the year it is taxable. If the latter, then this seems to be caused by income in a prior year being overstated, or more likely, opening equity the first year you began keeping records was overstated because there technically should have been a liability account for deferred income (created when a contribution was made to the IRA). I think a potential fix is to debit an Equity account and credit Income:RMD.

2006-01-02 * "RMD from IRA" #RMD
  Assets:IRA                            -100 USD.  ; from tax free IRA account (cash)
  Expenses: Taxes                     20 USD.  ; to Uncle Sam - IRS Witholding
  Assets:InvestmentAC              80 USD   ; to taxable brokerage account (cash)

  Income:RMD                         -100 USD  ; taxable RMD

  Equity:PriorPeriodAdj.            100 USD ; deferred income liability from a prior year

If you were keeping records in the year of contribution I think the entry would have been something like:

1996-01-02 * "Contribution to IRA"
  Assets:IRA                            100 USD 

  Assets:Cash                        -100 USD  

  Income:EarnedIncome         100 USD  ;  reduce income by the amount being deferred

  Liability:DeferredIncome     -100 USD  ;  create liability since this income has to be recognized later

and then the future distribution:

2006-01-02 * "RMD from IRA" #RMD
  Assets:IRA                            -100 USD.  ; from tax free IRA account (cash)

  Expenses: Taxes                     20 USD.  ; to Uncle Sam - IRS Withholding

  Assets:InvestmentAC              80 USD   ; to taxable brokerage account (cash)

  Income:RMD                         -100 USD  ; taxable RMD

  Liability:DeferredIncome        100 USD  ; deferred income liability from a prior year

All that to say, I think I would go with Martin's solution due to the simplicity of counting it as income the year it was received, and not this year - although it would still be necessary to track separately for taxes. 

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[Paul Marriott]

Thanks, Jacob, I like that approach and finally it makes some sense to me.  Its been driving me crazy for several days!