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I have tax-preferred retirement savings plans, and I track their activity using a double-entry bookkeeping app. I am at the age where I am starting to make withdrawals from the savings plans. The withdrawals are taxable income, while the asset appreciation and investment income within the savings plans are non-taxable.

What account structure and bookkeeping practice is generally accepted for taxable distributions from the registered savings plans? How do I record taxable distributions using that account structure? How do I define a report to list the taxable distributions for the year, as input to tax return preparation?

Obviously I have an asset account for the registered savings plan, and an asset account for my bank's chequing account. The simple bookkeeping method is to record a taxable withdrawal from the savings plan as a transaction which reduces the savings plan account and increases the chequing account. But nothing about that transaction says that the funds represent taxable income.

I would love to rely on a well-understood bookkeeping structure to let me label such transactions as taxable income. I can imagine various ways of adding further accounts to the transactions, as a way of labelling it. For instance, I could add a special "taxable distribution" asset account next to the retirement savings plan account. I could book a taxable withdrawal as:

  1. Reduce the savings plan account
  2. Increase the taxable distribution account
  3. Reduce the taxable distribution account (leaving it at a zero balance)
  4. Increase the chequing account

Then I could make a report which lists the reductions, but not the increases, from of the taxable distribution account as the taxable distributions.

But I have low confidence that this is a good answer, as opposed to a naive improvisation from an untrained amateur bookkeeper.

(Sorry, I am purposely avoiding using "credit" and "debit" because I still need to look up which direction is which when talking about asset vs income vs expense vs liability accounts. Untrained amateur bookkeeper and all that. Maybe someday I will internalise those terms.)

In case it makes a difference, my retirement savings plans include RRSPs in Canada, and IRAs and Roth IRAs in the USA. My bookkeeping app is GnuCash. I pay taxes primarily to Canada, and secondarily to the USA. But I am hoping there is a general bookkeeping structure for registered savings plans which is mostly independent of jurisdiction.

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  • Accounting questions are off topic. What is the actual problem you're trying to solve? Is it how to track taxable distribution for your tax return?
    – littleadv
    Apr 6 at 20:57
  • @littleadv Yes. In the end, I want to "define a report to list the taxable distributions for the year, as input to tax return preparation". And I want to enter data in way that feeds the report. Apr 7 at 7:14
  • There is no benefit to using double-entry accounting for personal bookkeeping. Even as an accountant, I see no benefit, and only an increase in unnecessary admin work. Certainly for someone who does not already have a solid grasp of accounting, this is just a headache for no purpose. Apr 11 at 19:27
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    @Grade'Eh'Bacon maybe so, maybe not, but not relevant to the question. Also, I use double-entry accounting because I wanted to keep books using free software with local data files I control, and GnuCash was the app I found which met those requirements, and GnuCash uses double-entry bookkeeping. The "double-entry" part is not onerous for me. Apr 12 at 20:12

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For each asset account for a tax-deferred retirement savings plan, create a companion asset account called "taxable distributions from" [the plan]. Book taxable withdrawals from the plan as reducing the funds in the plan account, and increasing the funds in the companion "taxable distributions" account, then reducing the funds in that account and increasing the funds in the account for the bank account which gets the actual money. Then make a report which lists only reductions from the companion account, not the corresponding increases. The total of this report over a taxable year is the total of taxable distributions from that savings plan.

I post this answer as a baseline, to compare against other answers. It is the best answer that I have come up with myself so far. It has a drawback, that it may include error correction transactions, and one needs to manually reverse those downstream from the report.

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  • If you're set on doing this (double-entry accounting), just book additional tax expense corresponding to the withholding amount. You will need an additional tax expense entry (might be + or -) at the end of the year when you file taxes, to 'true-up' your total taxes paid based on your final return filing. Apr 12 at 20:45
  • As a corollary to consider: do you bother recording anything in Gnucash to reflect your annual tax process? Perhaps you record a tax expense entry, but do you separate out that entry to show eg. the tax reduction from personal tax credits such as donations or medical expenses? I presume that you don't break any of that out - and the income from RRSP withdrawal is no different - it creates a tax impact that has a net effect on taxes payable, which all gets bundled together into a single reflection of your taxes owed. Apr 13 at 13:39
  • @Grade'Eh'Bacon Thank you for the comments. You say, "just book additional tax expense corresponding to the withholding amount". That sounds like the kernel of an alternate answer. Care to post it as an actual answer to this question? And for what it's worth, yes I record several things in bookkeeping which reflect my tax process. Charitable gifts are booked to one account, nondeductible but public benefit gives to another. GST collected, and paid, each get their accounts. etc. The income from RRSP withdrawal is no different — I want to track it also. Apr 13 at 21:12

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