[GNC] When income is not income

[Stan Brown (using GC 4.14)]

On 2025-07-02 08:01, David Warren wrote:
> Agreed w/ Michael 100% on the annuity.  Of COURSE it is an asset.  (And
> plenty of assets out there have conditions of all kinds; not just
> annuities.  They are still assets.)
> 
> There are plenty of ways to handle deferred income accounts like IRAs.  But
> I will suggest one that should fit your desires:
> If you make a non-deductible IRA contribution (e.g. you transfer $100 from
> a checking account to the IRA):
>    Debit Asset:IRA $100
>                      Credit Asset:Checking account $100
> 
> If you ask your company to forego $1000 of salary and deposit that to your
> IRA as a deductible contribution, (and pretend your salary was $3000 that
> period pre-contribution)
> 
> Debit Asset:Checking account $2000 [I am ignoring taxes or other salary
> deductions]
> Debit Asset:IRA $1000
>                       Credit Income:Taxable $2000
>                       Credit Income:Deferred $1000
> [Note that some, perhaps Michael Novack, would make that an Equity vs. an
> Income account.  I think you could pick either and have the same impact.
> Just a matter if you do or don't want to see that running income somewhere
> on your income statement.]

Okay, I can kinda-sorta see the point of Deferred Income, but I have two
issues, one theoretical and one practical.

Theory: In your latest example, That $1000 put unit the IRA is money I
own -- not in the future only, but right now. If I want to, I can cash
it out and take a vacation. It would be foolish financially, because of
associated taxes and penalties, but it would be possible and legal. If
you can dispose of something at will, isn't it an asset of yours?

Practice: A decade ago, I reasoned as above, so every contribution to an
IRA was a debit to Assets:IRA and a credit to Assets:Checking Account,
Income:Salary, or Income:Employer 401k Match. Since retiring, every
withdrawal was debit Assets:Checking Account, credit Assets:IRA.
    I quail at the thought of rejiggering a busy ten years of
transactions, and giving each of them two extra splits. Is this a
situation where there's really only one right way, or is there some
wiggle room?

> Now assume your IRA goes up in value over some period.  The $1100 you
> contributed is now worth $1900.  I book:
> Debit Asset:IRA  $800
>              Credit Income:Deferred $800
> 
> Hopefully you see where we are heading!!
> 
> Now when it's time to make withdrawals (required or otherwise), here's how
> we record a $300 withdrawal from the IRA:
> 
> Debit Asset:Checking account  $300
>                  Credit Asset:IRA       $300
> Debit Income:Deferred               $300
>                  Credit Income:Taxable $300
> 
> voila!  Everything balances.  We'd have $1600 remaining in the IRA with a
> $100 tax basis (given that was the original non-deductible contribution)
> and the Income:Deferred account balance would be exactly $1500, or
> represent the amount we still haven't paid taxes on as it has not yet
> become official IRS taxable income.
> 
> And if you don't want that deferred income EVER showing up on any income
> statement, you make it an Equity:Deferred IRA Income account!  But
> everything else works the same...

Stan Brown
Tehachapi, CA, USA
https://BrownMath.com