[GNC] When income is not income

[R Losey]

Caveat #1: I am not an accountant
Caveat #2: I know about annuities, but only in a general and high-level way

Regarding (A)...

It seems to me that effectively, you hand over an amount ($P) to someone,
and they agree to pay you so much a month $M until you die.

It seems like this *IS* an asset; it just has different behavior than other
assets. It is almost like a having a friend that owes you money.

When you transferred your traditional IRA to the annuity, did you need to
pay tax on it? Will you need to pay tax on the annuity payments ($M)?

How you were handling it is okay, but I think it tied in with (B)...
perhaps the Annuity should be an Equity account?



Regarding (B)...

This subject was discussed in the group a few years back... what I remember:

Technically, all of the money you put into an IRA is "deferred income",
which is an Equity account. As it earns dividends or interest, (or you add
to it), the deferred income increases, and as you take funds out, the
deferred income becomes actual income.


So, for example, a $1000 IRA withdrawl would look like:
    Increase (deposit) $1,000 to checking
    Decrease $1,000 from the IRA
    Decrease $1,000 from your deferred income
    Increase $1,000 Income:IRA_Distrubution



On Tue, Jul 1, 2025 at 4:42 PM Stan Brown (using GC 4.14) <
stan+gc at fastmail.fm> wrote:

> Disclosure:: (A) is an accounting question, not a GC question. I hope
> some folks will find the question interesting enough to comment on
> anyway. (B) is, I think, a GC question.
>
> (A) Annuity
>
> Last year I bought an annuity for a single payment of $P. I will receive
> a fixed $M each month until I die. Regardless of when that happens,
> there is no payout to any beneficiaries.
>
> I set this up as Assets:Investments:Annuity with an initial value of $P,
> transferred directly from my traditional IRA.
>     debit $P:  Assets:Investments:Annuity
>     credit $P: Assets:Investments:Traditional_IRA
> When I received the first payment last month, I did this:
>     debit $M:  Assets:Checking Account
>     credit $M: Assets:Investments:Annuity
> But now I'm having second thoughts.
>
> This annuity isn't an investment like a mutual fund. While it has a
> value, I can't touch that value ahead of the monthly schedule, and my
> heirs (or creditors) get nothing. So I'm not sure that it makes any
> sense to have it as an asset. Maybe I should have done this for the
> purchase
>     debit $P:  Expense:Annuity_purchase
>     credit $P: Assets:Investments:Traditional_IRA
> and this for each payment
>     debit $M:  Assets:Checking Account
>     credit $M: Income:Annuity_Payout
> That would reduce my total assets and my net worth by $P, but I'm
> getting uneasy about having included the annuity in Assets in the first
> place.
>
> Comments?
>
> At least this has the virtue of including the annuity income in my
> Income Statement. But that leads to another issue ...
>
> (B) IRA
>
> Right now withdrawals from my IRA are simple transfers:
>     debit $X:  Assets:Checking Account
>     credit $X: Assets:Traditional_IRA (same amount)
> While I think that's the right thing from an accounting standpoint, it
> has a drawback: the Income Statement doesn't show those withdrawals as
> part of my income, even though the tax man treats them as income and
> they should be in any statement I provide when applying for credit.
>
> Is there a way to eat my cake and have it? Maybe I could create an
> account Income:IRA_Withdrawals and a contra account
> Expense:IRA_Withdrawals_Contra. When making a withdrawal of $X I would
> record the transaction in the previous paragraph and also this:
>     credit $X: Income:IRA_Withdrawals
>     debit $X:  Expense:IRA_Withdrawals_Contra
> I could exclude the contra account from the income statement to produce
> an Income Statement containing all my income that's subject to tax. But
> this seems kind of rigmarolish, and I'm wondering whether there's a
> better way.
>
> --
> Stan Brown
> Tehachapi, CA, USA
> https://BrownMath.com
>
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-- 
_________________________________
Richard Losey
rlosey at gmail.com
Micah 6:8