Transfers are not Bills!

I guess this could work, but the fact is that money transferred from one account to another is not income, it's a transfer. You are just spending the money from a different account. The money you spend is expense. So I don't quite understand.

The money pulled from an IRA is totally weird. It is really a transfer but also an income. This is because of stupid tax law. I have found a way around it but admittedly, it is not one that most people will use (giving it away). This is not because I am rich (ha!) but because I give it anyhow, so I am pulling it out of the IRA and saving the money I used to spend from the checking account into a savings account. It is basically money laundering. LOL

Edit: The only reason I jump through these hoops is to have a record for my tax report that I pulled money from the IRA and spent it as a qualified deduction. This ends up as 0.00 income and a donation expense. I spent money. I didn't earn any. So even this is not true income. It is really a pure transfer that incurs a tax.

Likewise someone who is spending their IRA money to live on is transferring money. He isn't getting new income but slowly depleting his asset. IRS will get its cut from your interest and previously deducted contributions, but this isn't money you didn't have before. You just won't have it any longer.

@EL1234 "if the issue is to keep track of it for taxes, maybe a solution would be to use a tag for taxable transfers in addition to just looking at income transactions? I don't know. Or, categorize the transfer out of the IRA as a plain "Transfer" (not to an account) and the other side as "Income"? Not sure if that's any better…"

Yep, to me the main issue is to keep up with it for taxes because I don't believe a transfer to an IRA is truly income but a legal fiction to remind us to pay taxes on it. My situation is complicated by wanting to cancel out a gross distribution with a qualified one as well as have a recurring transaction for my tithe, which requires that I use the cash account as a "payable" account because Simplifi won't allow recurring in the investment account.

But I am glad that I spent the time on this issue yesterday because I now know exactly what to do if one wants to count their IRA distribution as an income, which is to do a plain transfer from the IRA and an income transaction (unlinked) in the receiving account.

One doesn't really even have to do anything other than the income transaction in the receiving account as Simplifi will automatically take care of the IRA account if it is connected. Its balance will go down. Finally, the investment company will send you a 1099 in January to remind you to declare it on your taxes so all you really need is a transfer and forget it.

And some folks don't keep up with their IRAs in Simplifi so in that case they can just do it like an annuity and it's income when it shows up in their account. (There are so many ways to do this so it comes down to personal preference.)

My problem with the whole thing is that it is still a transfer albeit a taxable one. If I ever decided to take regular distributions, I would do a one-sided transfer in the IRA and an income transaction in Savings. Then I would exclude the income from the Spending Plan but include it in Reports so it shows up in the Tax Report.

Your idea of being able to include positive transfers as income and negative ones as expense is an elegant solution and maybe will be considered. As I say, I am fine with positive ones being negative expenses since I want to leave the income category for new money that is really income.

Thanks again for the insights.

@DryHeat I understand but since my IRA is already accounted for in my Simplifi file and is part of my net worth, I don't consider it income to transfer it to another checking account. It is only taxable because when we made the contributions, we got a tax deduction for it.

Social Security and pensions are different because they are not accounted for in my Simplifi file. It is best to consider them just simple income and for federal tax purposes they are taxable. If you live long enough, you get way more back than you ever paid, which is not true of IRAs, which is always your money and any residue after death is transferred to your heirs.

As I said, how you do it is personal preference and if that's the way you want to consider it, then it's what works for you.

For my Retirement Income, I have these categories: IRA Distribution, SS and State Pension. The State Pension is my wife's and we used to have an asset account for it, but when it annuitized, it was zeroed out as it has no residual value. Our net worth also went down several hundred thousand dollars. We get a guaranteed income. But my IRA is already my asset and I decide how much to take out as long as I make the minimum required distribution starting at 73.

And one could annuitize your IRAs and then it would zero out and then it would have to be income as again you would lose the asset. And then there are Roth IRAs where it is purely a savings account that you transfer anywhere after age 59.5 with no tax implications. Of course, some of that is interest that you didn't get taxed on so theoretically some of that is income too, but since I don't have to pay taxes, I am not worried about accounting for that.

Anyhow, if I were taking regular distributions to spend, I would enter it into my checking account with my income category of Gross Distribution and would have in my IRA a one-sided transfer of the money. I would exclude both from my Spending Plan BUT include the distribution in my Reports. I really don't have to do that as Fidelity will send me a 1099 so I don't forget, not that I would. But that is my preference.

All you have to do is categorize the deposit in your checking account as an IRA Distribution Income, and let Simplifi update automatically your IRA value (assuming it is connected) and you're done. If your IRA happens to show the transfer in your spending plan (unlikely), you can just exclude that from Spending Plan and Reports.

Now you have income in your Spending Plan as well as in your tax report.

BTW, does your state, it's Arizona, right? tax your IRA distributions? Alabama does but lets you exclude the first $6K. We are trying to raise that. Alabama is fairly friendly to retirees. But they discriminate against private 401Ks and IRAs somewhat. State and Federal Pensions are exempt from tax. We have a lot of military retirees in Alabama.

@SRC54

BTW, does your state, it's Arizona, right? tax your IRA distributions?

I think the focus of this thread is (or should be) on how Transfers are represented in the Spending Plan.

Adopting any of the suggested changes would have no effect on tax reports. They all have to do with how the Spending Plan is laid out (move Transfers to the Income section, create a separate Transfers section, put +Transfers in Income and -Transfers in Bills). None of that changes the taxable character of a transaction.

@EL1234 "I am wondering if a custom income amount in the spending plan would make sense for your use case. It might simplifi (ha) things quite a bit. Something to think about?"

That's a good reminder, and one way to take the transfer into account for those who want to do so. It isn't as dynamic as a recurring transaction and would have to be updated for some unexpected income.