[GNC] When income is not income

[sunfish62 at yahoo.com]

Michael, 

I don't dispute anything of what you say, as you are far more knowledgeable on these subjects than I.

I did, however, have something of a philosophical thought regarding the annuity. 

You note that the value of the asset "evaporates" upon death. You also note that the value of the asset does not change with payments to the annuitant. 

The philosophical question that comes to me is this: if the value of this asset doesn't change with payments, and disappears upon death, does this asset actually have any real value now? 

I think that calling it a conditional asset is misleading. The money for that went out, and won't be recovered. Under these conditions, the purchase of the annuity was an expense (like buying food), and it would be clearer for any executors of the estate to manage.

Beyond the academic question of value for investment (am I getting more back than I paid in?), I don't see a real benefit to calling the annuity an asset. 

⁣David T. ​

On Jul 2, 2025, 10:51 PM, at 10:51 PM, Michael or Penny Novack via gnucash-user <gnucash-user at gnucash.org> wrote:
>Very separate questions.
>
>What you paid for the annuity is its basis as an asset. It is, however,
>
>a "conditional asset". The condition in this case your being alive. 
>After your death, whoever is closing down your books, would be entering
>
>a "journal transaction" to reflect its "evaporation" << debit equity, 
>credit annuity >>
>
>When you receive income from this annuity, simply debit cash, credit 
>income << the value/basis of the annuity is not decreased >>
>
>Distributions from an IRA, 401k, etc. are very different. And whether 
>that's taxable income depends on type of IRA, where you are in the 
>history of distributions, etc. I think what has you confused is that
>the 
>distribution is BOTH cash received, income, and reduction of the asset.
>
>In order to discuss handling THAT part of it we need to ask how are you
>
>carrying the IRA (as an asset) and how did it get there. BUT --- to 
>start you off thinking in the right direction, the transaction might 
>have FOUR accounts, debits to cash and equity, credits to income and 
>IRA. << So it WAS an accounting question too >>
>
>Michael D Novack
>
>
>On 7/1/2025 5:41 PM, Stan Brown (using GC 4.14) 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.
>>
>
>-- 
>There is no possibility of social justice on a dead planet except the
>equality of the grave.
>
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