Chapter 13

Tracking Tax-Deferred Investments

In This Chapter

Knowing when to use Quicken investment record keeping

Setting up a tax-deferred investment account

Recording your initial investment

Buying investments

Recording profits

Selling your investments

Adjusting your share counts and price information

Investment record keeping is something that more of us need to think about. More of us are investing as the population ages and we prepare for retirement. And the recent bouts of sheer craziness in the financial markets means that we probably all need to save more.

Fortunately, Quicken provides great tools for managing your investments, including your tax-deferred investments. And this chapter talks about those tools. But first, I should talk about whether you even need to do this.

Deciding to Use Investment Features

The Quicken investment record-keeping feature lets you do three important things:

• Track your interest and dividend income.
• Track real and potential capital gains and losses.
• Measure an investment’s performance by calculating the annual return from an investment.

If you’re a serious investor, these things probably sound worthwhile. But before you invest any time discovering how Quicken investment record keeping works, be sure that you need all this power.

Are your investments tax-deferred?

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. 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 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. Your bank accounts track everything you need to keep track of.

Note: For purposes of this chapter, 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 that the money goes for college, not for retirement.

Are you a mutual fund fanatic?

I want to make a related point. If you’re a fan of mutual funds, you don’t need Quicken to measure the funds’ annual returns. Fund managers provide these figures for you in quarterly and annual reports. Sometimes you also get personal performance data that’s even more granular at the mutual fund’s website. In sum, part of what you’re paying the mutual fund manager for is record keeping and performance management.

Accordingly, if you’re investing in mutual funds through a tax-deferred account, you probably really don’t need to be going to the extra work of figuring out the Quicken investment recording stuff.

Some investors don’t need Quicken

Let me give you an example of someone who doesn’t need to use the Quicken program’s investments feature: me. Once upon a time, I bought and sold common stocks, fooled around with a dozen or more mutual funds, and found out firsthand why junk bonds are called junk bonds. (Apparently, junk bonds are more risky, so they fluctuate wildly in value.) For the past couple of decades, and even though my investment account has grown steadily through compound interest and additional savings, I’ve simplified my financial affairs considerably.

I don’t invest directly in stocks, bonds, or mutual funds these days; instead, I stick money almost entirely into an IRA. My investments don’t produce appreciable taxable dividends or interest income; neither do they regularly produce taxable or tax-saving capital gains or losses. Money that I put into the IRA is tax-deductible. And money that I ultimately take out of the IRA will be taxable.

I’m also sticking with a handful of mutual funds, but I don’t need to calculate the annual return; that’s what mutual fund managers do. So I don’t need to figure, for example, what my shares of Vanguard Total Stock Market Portfolio (my favorite mutual fund) delivered as an annual return when I include both the 1 percent dividend and the 8 percent price change.

Because I don’t need to track investment income, track capital gains and losses, or calculate the progress of my investment portfolio, I don’t need Quicken investment record keeping for my personal use.

Many investors do want Quicken

Many people — including mutual fund investors using tax-deferred investment options such as 401(k) plans, 403(b) plans, and individual retirement accounts — do want to track their investments with Quicken, of course, in spite of the laziness I’m trying to promote. Accordingly, I’m going to describe how to track tax-deferred accounts with Quicken.

Furthermore, if you have a taxable portfolio stuffed full of individual stocks and bonds, you’re going to want to use Quicken to track your other taxable investment accounts anyway. And if you’re going to go to that work, it’s not much additional effort to track tax-deferred investments with Quicken, too.

Tracking a Tax-Deferred Investment

If you need to track a tax-deferred investment, you need to know how to set up a tax-deferred account and then record your investment activities.

If you’ll use Quicken to track any of your investments, you shouldn’t skip this section. Understanding how tax-deferred investment works makes tracking taxable investments much, much easier for you.

Setting up a tax-deferred investment account

Setting up an investment account to track a tax-deferred investment account works the same way as setting up any other account:

1. Click the Add an Account button at the bottom of the Accounts bar.

   Quicken dutifully displays the first Quicken Add Account dialog box that you use to add a new Quicken account (see Figure 13-1). If you’ve read this book in order so far, you’ve likely seen this dialog box many times by now. It asks you to identify the type of account you want to add.

   

2. Identify the type of investments in the account.

   You select the appropriate Investing & Retirement hyperlink to indicate that you’re adding an investment account: Brokerage, 401(k) or 403(b), IRA or Keogh Plan, or 529 Plan. When you do, Quicken asks for the name of the financial institution you use.

   Just to quickly identify what these account types actually are, a 529 plan is a college savings account that complies with Sec. 529 of the Internal Revenue Code. The 401(k) and 403(b) accounts are retirement accounts that comply with Sec. 401(k) and Sec. 403(b) of the Internal Revenue Code. The IRA or Keogh account type is for individual retirement accounts (IRA) and Keogh accounts (an old type of retirement savings account). The standard brokerage account option is the catch-all account type for investment accounts that aren’t tax-favored retirement or college savings accounts. (I talk about this type of account in Chapter 14.)

3. Identify the financial institution.

   After you specify which type of investment account you’re setting up, Quicken displays the second Add Account dialog box, which asks for the name of the bank or broker holding your investments. This dialog box lets you enter the bank or broker name or part of the name in a text box or lets you choose it from a list of popular banks. If you do identify the bank or financial institution, Quicken prompts you to provide the online username and password you use to access your account information electronically. Alternatively, click the Advanced Setup hyperlink at the bottom of the dialog box to indicate that you don’t want to identify your bank or broker. Quicken ten displays another version of the second Add Account dialog box, which lets you click the I Want to Enter Transactions Manually button to indicate that you want to enter investment transactions manually.

   Note: Quicken really wants you to grab your transactions electronically from the bank or financial institution. But entering the transactions manually usually works well when you’re just starting with Quicken.

4. Click Next, name the investment, and then click Next again.

   Quicken displays the third Add Account dialog box (shown in Figure 13-2). Move the cursor to the Account Name/Nickname text box and type a name for the account. If you’re setting up an account to track an individual retirement account, you might type IRA.

   When you click Next, Quicken displays the fourth Add Account dialog box.

   

5. Provide the last statement date and then click Next.

   The fourth Add Account dialog box (see Figure 13-3) asks for the date of the statement you’re using to enter your investment information. This date is the starting date, in essence, for your investment record keeping with Quicken. Enter the date and then click Next.

6. Describe the cash balance or money market balance (if any) associated with the account and then click Next.

   As you probably already know if you’re investing through a broker, some investment accounts have a cash account associated with the main investment account. The cash in this account, of course, provides the money you use for additional investments. And when you receive cash from selling some investment or from some dividend, the money goes into this account.

   To describe this cash account, use the Cash and Money Market text boxes to give the opening balances. You can probably guess this, but at the risk of being redundant, the information that you provide to set up a cash account or money market fund mirrors the information you provide to set up a regular ol’ checking account.

   

7. (Optional) Identify the account owner.

   If you set up a 401(k) or 403(b) account, Quicken may prompt you to enter information about who owns the tax-deferred investment account: you or your spouse. Using the boxes and buttons available, try to answer these questions as best you can about whether an account is yours or your spouse’s, whether the account relates to current or past employment, and so on. Don’t worry too much about this, however; it’s just icing on the cake. When you’ve answered the questions as best you can, click Next to display the sixth Add Account dialog box (see Figure 13-4).

8. Name the security, provide the ticker symbol, and then click Next.

   This sixth dialog box does two things for you:

   • It collects the investment’s ticker symbol (if available) so that you can download share prices several times during the day and drive yourself half mad with anxiety. If you don’t know the ticker symbol, click the Ticker Symbol Lookup button to display a Quicken web page that lets you find the ticker symbol.
   • It asks you to name the security held in the investment account you’re setting up, using the Security Name box. This won’t make sense in some cases, such as when you’re holding a single certificate of deposit in an IRA. But in other cases, such as when you’ve set up an IRA with a mutual fund company and invested in three mutual funds within the IRA, identifying the securities within the account separately makes sense.

   

   When you click Next, Quicken displays the seventh Add Account dialog box, shown in Figure 13-5.

9. Provide a total shares count.

   Enter the number of shares you hold of each security you identified in Step 8.

   

10. Click Next.

    Quicken displays a dialog box summarizing the investment that you’ve just entered. If something seems to be amiss, click the Back button to find the Add Account dialog box where you entered some incorrect bit of information. If everything seems okay, click Done. For some types of tax-deferred investment accounts, Quicken may also ask for additional information. If you set up an IRA account, for example, Quicken asks about the type of IRA you’re setting up and whether the IRA belongs to you or to your spouse. Quicken may also ask about the possibility that you’re setting up an account to track a single mutual fund. Answer any questions by clicking the Yes or No button as appropriate. When you’re done answering all the questions, click Finish.

11. Review the new (partially described) investment.

    To check your work so far, click the Investing tab and its Portfolio button. Quicken displays the Portfolio window, which shows your new investment account and provides a bit of additional, investment-related information (see Figure 13-6).

Recording your initial investment

After you set up an investment account and describe the securities in the account, you can record an initial purchase of the investments.

You need to know the original price of those first shares, of course. So dig through that kitchen drawer where you stuff bank statements, financial records, and those kooky birthday cards from Aunt Enid.

When you find the proper paperwork that shows the number of shares you purchased and the price per share, here’s what you do:

1. Open the investment account, if it isn’t already open.

   Open the investment account by clicking the account name on the Accounts bar.

   If the Investing tab isn’t shown, choose View⇒Tabs to Show⇒Investing.

2. Tell Quicken that you want to enter cost basis data.

   Click the Enter hyperlink in the Cost Basis column. If the Cost Basis column doesn’t show the Enter Cost hyperlink, click the plus (+) symbol next to the Security Name you chose for the mutual fund. After you click the hyperlink, Quicken displays the Enter Missing Transactions dialog box, shown in Figure 13-7.

   

3. Click the Enter Missing Transaction button.

   Quicken displays the Buy – Shares Bought dialog box, shown in Figure 13-8.

   

4. In the Transaction Date text box, enter the date you first purchased the fund shares.

   Move the cursor to the Transaction Date text box and enter the date by using MM/DD/YYYY format. Note: You don’t have to enter a two-digit month or day number if a single digit makes sense. Enter July 18, 1998, for example, as 7/18/98 or July 18, 2008 as 7/18/08. Quicken is smart enough to figure the right year. You may also select the date from the pop-up calendar.

5. (Optional) Enter a memo description.

   If you want to tie the purchase to a confirmation order number, for example, enter the data in the Memo text box. I suppose that you could use this text box to record anything: Kilroy was here. Save the whales. Don’t tread on me.

6. Indicate the size of your purchase.

   To enter the total number of shares, move the cursor to the Number of Shares text box. (Fractional shares are okay.)

7. Indicate what you paid per share.

   With the cursor in the Price Paid text box, enter the amount you paid for the lot. After you supply Quicken the adjusted cost basis, it calculates the total cost.

8. Record the initial purchase of mutual fund shares by clicking the Enter/Done button.

   Quicken redisplays the Enter Missing Transactions dialog box (refer to Figure 13-7).

9. (Optional) Repeat Steps 2–8, if necessary.

   You need to repeat Steps 2–8 to record any other lots you purchased. If you own 1,000 shares of Vanguard 500 Index, but you accumulated these shares by buying shares ten times over the past ten years, you need to record ten separate lots. The last time through the steps, if you’re setting up a tax-deferred investment account that you didn’t really need to set up, you can ask yourself why you didn’t listen to me when I said you don’t need and therefore don’t want to do this for tax-deferred investments.

After you describe each lot that makes up your holdings of the mutual fund investment, the Enter Missing Transactions dialog box shows that there aren’t any placeholders for missing transactions because the Shares placeholder and the Cost placeholder should both equal zero (see Figure 13-9). You can click Done.

If you make a mistake entering a transaction, you can click the Edit or Delete button to the right of the transaction to change or remove the erroneous data.

Buying investments

As you buy additional investments — by contributing additional amounts to your retirement account or by reinvesting dividends and capital gain distributions — you record the transactions for the investment account.

By writing a check

If you buy shares by writing a check, display the investment window (by clicking the Investing tab and then clicking the investment account) and then record the purchase by following these steps:

1. Click the Enter Transactions button.

   Quicken displays the dialog box used to enter investment transactions.

2. Select Buy – Shares Bought from the Enter Transaction drop-down list box.

   Quicken displays the Buy – Shares Bought version of the investment transaction entry dialog box, shown in Figure 13-10.

   

3. Enter the purchase date in the Transaction Date text box.
4. (Optional) Enter a description in the Memo text box.
5. (Optional) Enter the bank account on which you’ll write the check that pays for the shares.

   If you’re not purchasing shares using money available in a cash account connected to the investment account, select the account name from the Account drop-down list box.

6. Indicate the size of your purchase by using the Number of Shares and the Price Paid text boxes.

   Tell Quicken the size of your investment by entering the number of shares purchased and the price paid per share.

7. Enter the commission or fee that you paid.

   Move the cursor to the Commission text box and enter the commission or fee you paid to purchase the shares. (The amount shown in the Total Cost text box includes this figure.)

8. Record the purchase.

   Click the Enter/New button if you want to record the transaction and enter another new transaction, or click the Enter/Done button if you want to record just the single transaction. Quicken records your purchase of new shares. You’re now a capitalist. Congratulations.

By reinvesting dividends, interest, or capital gains

When you reinvest your dividends, interest, or capital gains, you also must record your reinvestment transactions. Essentially, you’re buying new shares with the dividend or capital gain proceeds you could have received. To record the reinvestment of investment profits, display the investment window (by clicking the Investing tab and then clicking the investment account) and then follow these steps:

1. Click the Enter Transactions button.

   Quicken displays the dialog box used to enter investments transactions.

2. Select Reinvest – Income Reinvested from the Enter Transaction drop-down list box.

   Quicken displays the Reinvest – Income Reinvested version of the investment transaction entry dialog box, shown in Figure 13-11.

   

3. Enter the purchase date (in this case, the reinvestment date) in the Transaction Date text box.
4. (Optional) Type a brief explanation of the transaction in the Memo text box.
5. Use the Amount and Shares columns to describe the reinvestment.

   Take another look at Figure 13-11. No, really, go ahead. I’ll wait. See those rows labeled Dividend, Interest, Short-Term Cap Gain Dist, Mid-Term Cap Gain Dist, and Long-Term Cap Gain Dist? And see the columns labeled Amount and Shares? Use these rows and columns to record the amounts of dividends, interest, and capital gains distributed to you by the mutual fund and to record the numbers of shares you purchase by reinvesting these amounts. If you receive $1,800 in dividends and use this amount to purchase 10 shares, you enter 1800 in the Dividend Amount box and 10 in the Dividend Shares text boxes, respectively.

6. Record the reinvestment transaction.

   Click the Enter/New button if you want to record the transaction and enter another new transaction, or click the Enter/Done button if you want to record just the single transaction.

Figure 13-11 shows $1,800 of dividends being reinvested in the mutual fund by buying 10 more shares.

Recording your profits

Perhaps regularly, you’ll receive distributions directly from the investment account’s investments but don’t immediately reinvest them. Instead, you deposit these proceeds in the investment accounts’ cash account or money market account.

To record these kinds of distributions, you follow a process very similar to the one I describe in the preceding section. To record an income transaction directly into the investment account, follow these steps:

1. Click the Enter Transactions button.

   If necessary, click the investment account to display the account’s information in a register and then click the Enter Transactions button. Quicken displays the dialog box used to enter investment transactions.

2. Select Inc – Income (Div, Int, Etc.) from the Enter Transaction drop-down list box.

   Quicken displays the Inc – Income (Div, Int, Etc.) version of the investment transaction entry dialog box. The Inc – Income (Div, Int, Etc.) version of the investment transaction entry dialog box closely resembles the Reinvest – Income Reinvested dialog box, so I won’t show it here.

3. Enter the distribution date in the Transaction Date text box.
4. Use the Transfer Account drop-down list to identify the account into which you’ll deposit the check that the mutual fund company sends you.
5. (Optional) Type a brief description of the distribution in the Memo text box.

   Be creative. Type your wedding anniversary, the name of your dog, or even a piece of data related to the dividend or distribution.

6. Indicate the dividend or capital gains distribution amount.

   Enter the amount in the appropriate amount text box. A dividend, I hope you can guess, goes in the Dividend box; a short-term capital gain goes in the Short-Term Cap Gain Dist box, and so on.

7. Record the dividend or distribution transaction.

   When you click either the Enter/New or the Enter/Done button, you record the dividend. If you click the Enter/New button, Quicken leaves the dialog box open so that you can enter some other transactions.

Selling investments

Selling mutual fund shares works basically the same way as buying them, only in reverse. To record the sale of shares held in an investment account, perform the following actions:

1. Click the Enter Transactions button.

   Display the investment window by clicking the Investing Center button and then clicking the Enter Transactions button. Quicken displays the dialog box used to enter investment transactions.

2. Select Sell – Shares Sold from the Enter Transaction drop-down list box.

   Quicken displays the Sell – Shares Sold version of the investment transaction entry dialog box, shown in Figure 13-12.

   

3. Enter the sale’s date in the Transaction Date text box.
4. (Optional) Type a brief description of the sale in the Memo text box.
5. Tell Quicken which shares you’re selling.

   If you’re selling all your shares, select the Sell All Shares in This Account check box.

   If you’re not selling all your shares, click the Specify Lots button so Quicken that displays the Specify Lots Sold in This Transaction dialog box (see Figure 13-13). Then use the Shares to Sell column to indicate how many shares from each lot you’re selling. Note that you can effect the capital gain you pay by picking shares with higher or lower original cost bases. Pick shares with a higher original cost, for example, that you reduce the capital gain and therefore the capital gain taxes.

   

6. Give Quicken the number of shares you’re selling.

   Use the Number of Shares box to specify the number of shares you’re selling (if you didn’t select the Sell All Shares check box in Step 5).

7. Indicate the price per share that you received by using the Price Received text box.

   With a little luck, your selling price is more than you paid.

8. Enter the commission or fee you paid to sell the shares in the Commission text box.

   Quicken calculates whatever you don’t enter. If you tell Quicken how many dollars you sell (by using the Price Received text box), it calculates the number of shares you sell by dividing the total sales amount by the price per share. If you tell Quicken how many shares you sell (by using the Number of Shares text box), it calculates the total sales amount by multiplying the number of shares by the price per share. I guess this feature is handy.

9. Enter the bank account into which you’re going to deposit the sale’s proceeds.

   Open the To drop-down list box and select the appropriate account. (Probably, you’ll deposit the proceeds in the associated cash account.)

10. Click one of the Enter buttons.

    Quicken records your sale.

Correcting a mistake

If you make a mistake, don’t worry; it’s not a problem. You can edit an investment transaction. To edit a particular transaction, first display the account with the transactions. To do this, click the investment account on the Accounts bar. Quicken displays the investment transactions for the account (see Figure 13-14).

To edit one of the transactions you see listed for the investment account, double-click the transaction. Quicken opens the dialog box you originally used to record the transaction (such as the one shown in Figure 13-15), and you use it to make your changes.

Working with slightly tricky investment transactions

I haven’t described every possible investment transaction that you’re likely to encounter in a typical tax-deferred investment account — although I have described nearly every one I’ve encountered in the past two or three decades. You should know, however, that Quicken lets you record three additional, common-to-tax-deferred-investment-account transactions by specifying several almost magical actions: shares out, stock split, and reminder transactions.

How do I remove shares from an account?

You can tell Quicken to remove shares from an account — without moving the money represented by the shares — to some other account. Why would you want to remove shares from an account by using a shares-removed transaction? I can think of two such situations:

• You erroneously added shares to the account with the shares-added transaction action, and now you need to remove them.
• You’re using an investment account to record old investment activity, such as activity from last year.

The first instance is self-explanatory, because you’re simply correcting an error that you made. In the second case, however, you don’t want to transfer the proceeds of an investment sale to a cash account because the money from the sale was already recorded as a deposit at some point in the past.

You can record a shares-removed transaction directly in Quicken by clicking the Enter Transaction button and choosing Remove – Shares Removed from the Enter Transaction drop-down list box. Then fill in the rest of the fields in the dialog box the same way that you would for a regular ol’ sell transaction. The only difference is that you won’t give a transfer account for the sale proceeds — because there aren’t any proceeds.

What? The stock split and then doubled?

Stock splits don’t occur very often. When they do occur, however, the company issuing the shares in effect gives you a certain number of new shares (such as two) for each old share you own.

To record a stock split, you click the Enter Transactions button and select Stock Split from the Enter Transaction drop-down list box. When Quicken displays the Stock Split version of the dialog box used to enter investment transactions (see Figure 13-16), you indicate the ratio of new shares to old shares. For a two-for-one split, for example, you indicate that you get two new split shares for each old unsplit share. The whole process is pretty easy.

Quicken, will you remind me of something?

A reminder transaction is the electronic equivalent of a yellow stick-on note. If you put a reminder transaction in an investment account, Quicken gives you a reminder message on the reminder date. You can’t goof up anything by trying out reminders, so if you’re curious, enter a reminder transaction for tomorrow and see what happens.

You can post a reminder note by clicking the Enter Transaction button, selecting Reminder Transaction from the Enter Transaction drop-down list box, and filling in the dialog box that Quicken displays (see Figure 13-17).

You may want to use reminder transactions to record due dates for contributions to retirement accounts or for required minimum distributions amounts or dates.

Reconciling an account

You reconcile a tax-deferred investment account the same basic way that you reconcile a bank account. The only real difference — and it doesn’t affect reconciliation mechanics — is that you focus on investment shares and not on account balance dollars. To begin reconciling a tax-deferred investment account, display the Investing tab, click the Account Actions button, and choose the Reconcile command. If you have questions about what to do next, refer to Chapter 8; it describes how you reconcile a bank account, but the same procedures apply to both tax-deferred and regular investment accounts.

Trying reports

I just want to say one thing about Quicken reports as they relate to your investments, both tax-deferred and taxable: The reports are available. (For more information, see Chapter 7.)

Using menu commands and other stuff

For the most part, the commands and menus available for an investment account (no matter whether you’re talking tax-deferred or taxable) are the same as those available for all the other accounts that Quicken supplies. I write about the commands that I think are most helpful to new users in the preceding chapters of this book. If you have a question about how the Void Transaction(s) command works, for example, refer to the index, which directs you to a specific discussion of that command.

Updating Securities Prices

You can collect current market prices and store this information with your accounts (both tax-deferred and taxable).

To update security prices automatically, just display the Investing tab and click the Portfolio button. Then, when Quicken displays the Portfolio tab (see Figure 13-18), click the Update button and choose the One Step Update command. Quicken grabs nearly current security prices from the Quicken website.

To update the market price for a security manually, you also need to display the Portfolio view of the Investing tab. When you’ve done that, just use the arrow keys or click the mouse to select the security. Then move the cursor to the Quote/Price text box and enter the current price.

When you use either the automatic or manual method of updating the pricing information, Quicken recalculates the Market Value field of the Portfolio tab as well as the Market Value figure at the bottom of the register window.

If you invest exclusively in tax-deferred investments, the information in this chapter should be all you need. If you also invest more actively in taxable accounts, you may want to turn to Chapter 14, which describes how you use a Quicken investment account to track a typical brokerage account.

I’m not going to go into more detail here about what all these extra bells and whistles do, however. If you’re interested in this stuff, just take the time to explore these commands. You will gain some interesting insights into your financial investments.