Are Your Investments Tax-Deferred? - dummies

Are Your Investments Tax-Deferred?

By Stephen L. Nelson

If your investments are tax-deferred — if, for example, you’re using individual retirement accounts (IRAs), Simple-IRAs, Roth accounts, or 401(k)s — you don’t really need to track investment income and capital gains and losses in Quicken 2013. Tax-deferred investments have no effect on your personal income taxes in the United States. You get a tax deduction for the money you stick into IRAs, for example, and anything you take out is taxable.

Or in the case of a Roth IRA or Roth 401(k), you don’t get a deduction for amounts you stick into the account, but then you also don’t get taxed on amounts taken out of the account — which means that you don’t need to closely account for Roth IRA investments, at least for tax accounting reasons.

With tax-deferred investments — such as deductible IRAs, 401(k)s, and Simple-IRAs — you record all that you should need to know via your checking account. Checks earmarked for investment are categorized as IRA Deductions, for example, and investment account withdrawals deposited into your checking account are categorized as IRA Distributions.

In other words, you don’t need to set up special accounts for tracking your investments in Quicken. Your bank accounts track everything you need to keep track of.

529 plans are also tax-deferred investments, but a 529 plan works a little differently. In a 529 plan, you save money for someone else’s college costs — probably a child or grandchild. You don’t get a tax deduction when you put money into the 529 plan, but the investment earnings are not taxed as they are realized.

And later, when the plan beneficiary (again, probably your child or grandchild) withdraws money, the withdrawals aren’t taxed as long as the money is used for college costs. In a sense, a 529 plan works like a Roth account — except the money goes for college and not for retirement.