401K distributions for retirees

As a working person, I always tracked my 401K in YNAB, but I'm retired now and starting to take monthly withdrawals.  The majority of the amount withdrawn from my 401K will be treated as income and will go into a checking account that's part of my YNAB budget; another portion of the withdrawal will go to the IRS for Federal taxes.  For example, $2,000 will come out of the $401K account; $1,500 will go into a budgeted checking account; and $500 will go for tax payments.   

Is there a way to make a transfer work from the tracked 401K to the budgeted checking account, or will I need to enter the two sides separately (i.e. a withdrawal from the 401K and a separate income deposit in the bank account)?   

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  • Is the 401(k) account a tracking account in YNAB? If so, it is just a transfer from 401(k) to Checking and since it is a transfer from an off budget account to an on budget account that requires a category, which would be Income: TBB (well let me clarify, if you create the transfer in your checking account, it will need a category but if you create the transfer in the 401(k) account it won't require a category, but when you go to see the other side of the transaction in your checking account, it will need a category there).

    Are you tracking the tax payments in YNAB? If so, you could do the whole thing to Income:TBB and the allocate the necessary amount to the Tax category. If you are not tracking the tax payment in YNAB, I would say 2 transactions in the tracking account - one is the transfer to the checking account and one is the payment to the IRS. (What about state taxes?).

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      • June
      • June
      • 2 mths ago
      • Reported - view

      jenmas Yes, the retirement plan is a tracking account in YNAB.  I'm not tracking tax payments, so I used the second option you suggested (two transactions in the tracking account).  Makes perfect sense.

      I don't have the option to withdraw state taxes so those will be handled another way.  

      Sometimes I just need another pair of eyes, thank you!

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  • June said:
    I don't have the option to withdraw state taxes so those will be handled another way.

    Best way is to have a category dedicated to state taxes in your budget. Whenever this income comes in, budget the proper portion of it to State Taxes.

    Like 1
  • Speaking of taxes and 401K distributions I would like to throw this out there for those who give to charities and do not make enough to itemize their deductions (US Only).  There is a method to have funds transferred directly from your 401K/IRA to a charity.  This donation will be considered tax free as well as go toward your required minimum distribution (RMD).  I have not started taking RMD's yet but I will look into this more when that time comes.  If you give a significant amount this could save you a few thousand each year in taxes.

    With the new higher standard deduction in the US, last year is the first time I could not claim my charitable contributions.  I would not implement this method unless I was already taking distributions out of my retirement accounts but for those that are already taking distributions this method could be beneficial.

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      • nolesrule
      • YNAB4 Evangelist
      • nolesrule
      • 2 mths ago
      • Reported - view

      ynaber2613 You are referring to Qualified Charitable Distributions. Yeah, those are valuable to people who have RMDs that are higher than the amount of money they need for income now and won't need to hold onto it for later.

      For those of you have not reached RMDs, another method for building up itemized deductions is bunching and possibly using a Donor Advised Fund. We did this in 2017, making a large donation, and now we are probably going to do it again this year.

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      • ynaber2613
      • ynaber2613
      • 2 mths ago
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      nolesrule Not sure how a Donor Advised Fund will help if you are below the standard deduction anyway unless the funds for the DAF are considered as a credit rather than a deduction.  

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      • nolesrule
      • YNAB4 Evangelist
      • nolesrule
      • 2 mths ago
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      ynaber2613 you hold onto the money until you build up enough that itemizing makes sense. 

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      • ynaber2613
      • ynaber2613
      • 2 mths ago
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      nolesrule Makes sense I guess but don't see any difference in this and simply saving your donations for several years and make them at one time.

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      • Superbone
      • YNAB convert since 2008
      • Superbone
      • 2 mths ago
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      ynaber2613 Yes, I helped my mom make a QCD from her RMD last year.

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      • nolesrule
      • YNAB4 Evangelist
      • nolesrule
      • 2 mths ago
      • 1
      • Reported - view

      ynaber2613 There isn't a difference if you are going to make the donations directly to organizations right away.

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      • ynaber2613
      • ynaber2613
      • 2 mths ago
      • Reported - view

      nolesrule I understand now, using the DAF you can prefund the amount for say a few years, take the deduction, and then distribute it over the next few years.  This actually makes sense.

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