So I know this has been asked in similar ways and I searched but really didn’t see anything that specifically applied. I am new to Tiller and have set up the Savings Budget sheet and am looking to do some Envelope style budgeting.
The question I have is about IRA transfers. I am retired and have 3 income sources. SSA, IRA monthly transfer, and some side woodworking. The issue I have is the IRA transfer. I have my Schwab account linked so it shows up as both a negative and positive transaction and logic would say to record it as a transfer as it is really neutral to my assets.
The problem is that then the money does not show up as budgeted income in either the foundation budget sheets or the Savings budget sheet. What I am doing now is categorizing the transfer to my Checking as income and the debit from Schwab as a transfer in a category that’s hidden. This seems to work but I am not sure if its the best approach. I would love to hear how other people deal with this.
I’m at a different stage of life, but I faced a parallel question of how to classify transfers from my son’s 529 when we started paying for college this year. I, too, use the Savings Budget. Ultimately, I decided to categorize the transaction from the 529 to our checking account as a transfer out, and the matching transaction in our checking account as a transfer in. I then added the value of the transfer in as savings for our College Tuition category in the Savings Budget sheet.
I got stuck on categorizing this as “income” because at least some of it not really new income. It’s money that theoretically was categorized previously as income before it was invested. I suppose one could try to separate out original income from investment income, but that would get complicated. Tricky issue, I think.
This seems like a good way to do it - assuming it’s a Traditional IRA (not Roth) - then it would be properly treated as fully taxable income.
It sounds like your transactions include the transfers of funds (out of IRA, into checking), but is missing the investment sell, which is really the taxable event (and income transaction).
So, instead of having three transactions (income from sell, transfer-out IRA, transfer-in checking), you have them combined into two (transfer-out IRA, income from sell/transfer-in checking).
When the 529 funds are used as intended, none of it is taxable income. The investment performance and non-taxable income could maybe be tracked, but it’s really just a transfer of funds from a taxable income perspective. (not that this is news to you, just my thoughts)
From a budget perspective, it makes sense that a planned portion of savings is accounted for, and then income isn’t really all new income (as you said), and no taxable income.
For those, I like to use an Income - Tax Free Group, to keep them separated from my normal taxable Income Group.
Category
Group
Type
Income - Tax Free
11-Income - Tax Free
Income
Cashback Rewards
11-Income - Tax Free
Income
Stock Sale Cost Basis
11-Income - Tax Free
Income
Where the 11- number prefix is used to control Group sort order in reports and also a way to keep Category/Group/Type names unique, so it’s obvious which one it is and sometimes so solutions will work properly.