Roth 401k

Posted by Sam on October 3, 2006, 12:51 pm

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I contribute to a roth 401k account, a roth 401k has the same tax
setup as a roth ira so my contributions are post tax, grow tax free and
are not taxable at withdrawal. But that is only partially true, turns
out that an employee contribution is withdrawn tax free but the
employer contribution (which is calculated pre-tax) is taxed at
withdrawal. Is it woth it to track the employee and employer
contributions separatley in order to see the tax implications when I
retire? And if it is important to do that how would I do it? I am just
converting to Quicken 2006 home and business from Money 2006 so I am
still learning the software. If it is not worth tracking these two
contributions independently then I am still not sure how to set it up,
I am assuming I would set up as an "Other After-Tax Deduction" but how
would you catagorize that?

Thanks for any help...

Sam

Posted by Andrew on October 3, 2006, 9:01 pm

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Sam wrote:

> I contribute to a roth 401k account, a roth 401k has the same tax

> setup as a roth ira so my contributions are post tax, grow tax free

> and are not taxable at withdrawal. But that is only partially true,

> turns out that an employee contribution is withdrawn tax free but the

> employer contribution (which is calculated pre-tax) is taxed at

> withdrawal. Is it woth it to track the employee and employer

> contributions separatley in order to see the tax implications when I

> retire? And if it is important to do that how would I do it? I am just

> converting to Quicken 2006 home and business from Money 2006 so I am

> still learning the software. If it is not worth tracking these two

> contributions independently then I am still not sure how to set it up,

> I am assuming I would set up as an "Other After-Tax Deduction" but how

> would you catagorize that?

> Thanks for any help...

> Sam

Sam -

This is very interesting. I didn't consider the employer's contribution in
the Roth 401(K) as having different tax consequences as your contribution.
But look at:
http://www.financial-planning.com/pubs/fpi/20050214101.html . It says
"There is, however, a twist to the Roth 401(k)s. Employees will place an
after-tax amount in contributions to the Roth 401(k). But the employer match
for the contribution--up to 3% of income at most companies--will go into a
separate regular 401(k) account. This would enable the company to deduct its
cumulative match contributions up front from its corporate income taxes."
This seems to me to indicate that no only will you want to track them
separately, but indeed you may very well HAVE TO since they'll be in
different accounts?

-----------------
Regards -

- Andrew

Posted by Sam on October 4, 2006, 8:06 am

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So how would you recommend setting that up in quicken, that is how
would you set it up so that the employers contribution is tracked in an
account separate from the employee contribution and how would you
catagorize each contribution? I just started using quicken this weekend
so I apologize if it is obvious how to do this.

Thanks

> Sam -

> This is very interesting. I didn't consider the employer's contribution in

> the Roth 401(K) as having different tax consequences as your contribution.

> But look at:

> http://www.financial-planning.com/pubs/fpi/20050214101.html . It says

> "There is, however, a twist to the Roth 401(k)s. Employees will place an

> after-tax amount in contributions to the Roth 401(k). But the employer match

> for the contribution--up to 3% of income at most companies--will go into a

> separate regular 401(k) account. This would enable the company to deduct its

> cumulative match contributions up front from its corporate income taxes."

> This seems to me to indicate that no only will you want to track them

> separately, but indeed you may very well HAVE TO since they'll be in

> different accounts?

> -----------------

> Regards -

> - Andrew

Posted by JM on October 4, 2006, 10:01 am

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Sam wrote:

> So how would you recommend setting that up in quicken, that is how

> would you set it up so that the employers contribution is tracked in an

> account separate from the employee contribution and how would you

> catagorize each contribution? I just started using quicken this weekend

> so I apologize if it is obvious how to do this.

> Thanks

> > Sam -

> >

> > This is very interesting. I didn't consider the employer's contribution in

> > the Roth 401(K) as having different tax consequences as your contribution.

> > But look at:

> > http://www.financial-planning.com/pubs/fpi/20050214101.html . It says

> > "There is, however, a twist to the Roth 401(k)s. Employees will place an

> > after-tax amount in contributions to the Roth 401(k). But the employer match

> > for the contribution--up to 3% of income at most companies--will go into a

> > separate regular 401(k) account. This would enable the company to deduct its

> > cumulative match contributions up front from its corporate income taxes."

> > This seems to me to indicate that no only will you want to track them

> > separately, but indeed you may very well HAVE TO since they'll be in

> > different accounts?

> >

> > -----------------

> > Regards -

> >

> > - Andrew

How does the FI report the holdings to you? - do they separate the
holdings/earnings or do they just combine them?
Do you download account activity? - or enter it manually from
statements?

Answers to these questions will help in devising a tracking strategy -
it's going to be a work-around since QW does not [yet?] offer this type
of 401k account.

My initial inclination would be to set up two separate accounts - both
tax-deferred brokerage accounts. Would not use the '401k' account type
in order to retain full flexibility - you can always convert sometime
down the road if appropriate or desireable - buts it is a one way step
- you can not reverse it.

As an aside, FWIW, my 401k was established as a tax-deferred brokerage
account long before QW offered the specific 401k account type - have
not changed it and have no problems tracking or with tax implications.

Seems this is an example of where sub-accounts would be a very useful
feature.

Posted by Sam on October 4, 2006, 9:07 pm

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I cannot seem to find a statement at the moment, I logged onto the site
and it appears that the contribution deposits are recorded separately
and I see that the investment purchases are made separately (see below
for an example).

10/03/2006 Cash Safe Harbor Match Contributions Cash Receipts
10/03/2006 Cash Employee Roth 401k Contributions Cash Receipts

10/03/2006 Stock A Safe Harbor Match Contributions Purchase
10/03/2006 Stock A Employee Roth 401k Contributions Purchase
.

Download is not available so I will have to manually enter the data and
I really want to set this up in the simpliest manner possible. My
thoughts are that I will set this up so that contributions are entered
when I enter my paycheck transactions and any other deposits are
receipts I will enter just once per quarter.

Any suggestions on how to do this so that I can minimize manual work?

Thanks, Sam