[GNC] When income is not income

[Stan Brown (using GC 4.14)]

On 2025-07-02 15:42, David Cousens wrote:
> I personallywould regard the increase in Fair Market Value as an
> increase in the fund, but I think it would be better to get the opinion
> of a practising accountant in your jurisdiction.

Hi, David.

Earlier, I couldn't articulate why I wanted to account for annual
changes in FMV, but it came to me this morning as I was reading your
reply from yesterday. The FMV as provided by New York Life is part of
what determines my RMD (how much I must withdraw from IRAs in the coming
year). So I think that needs to be in my books one way or another. One
possibility is simply to enter a description-only entry (debit=0,
credit=0) each year when I receive the statement. Another is to record
the increase or decrease in Equity:Unrealized Gains and Losses --
unrealized by me, of course; they may very well be realized by New York
Life.

(Fairly recent legislation allows (1) aggregating the annuity FMV and my
brokerage FMV, (2) determining the overall RMD based on the IRS's life
expectancy table, and then (3) making total withdrawals from the two to
fulfill the RMD. In my case, the annuity payments are greater than the
annuity's "share" of the RMD, so that I can reduce withdrawals from the
brokerage below what would otherwise be the brokerage's "share". Since
the IRA in the brokerage grows tax deferred, postponing withdrawals is a
good thing.)

> As your income from
> the fund is taxable, it is likely that any income to the fund is
> taxable but whether that is in your hands or the fund  manager's hands
> will depend on the relevant legislation.

Income tax for this annuity-as-a-traditional-IRA is based on the amount
actually withdrawn, not the FMV.

I wasn't actually given any projection of expenses by New York Life, but
I'm sure they build that in to their annuity offers. As a matter of
interest, my contract gives me a fixed 10.54% of my original purchase
price every year, in monthly installments. By a slight margin, that was
the best return available a year ago from any of the top-tier insurance
companies as rated by Best, Moody's, and so on.

Jane Bryant Quinn's book /How To Make Your Money Last/ is very good on
annuities, explaining the different kinds and why most kinds are not a
good idea.

> My case differs perhaps in that I get an annual statement detailing my
> drawings and the increase in the fund from the investment returns after
> tax paid by and the fees paid to the fund manager, so I feel quite
> justified in posting that  as an increase in the basis of the fund as
> it adds to any residual value my estate will receive on my death. I
> record the income as a credit to non-taxable income and debit to the
> asset account.

Yes, those are differences from my situation. But I think we have in
common wanting the numbers to be objectively verifiable, without making
assumptions.

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

> On Wed, 2025-07-02 at 14:50 -0700, Stan Brown (using GC 4.14) wrote:
>> On 2025-07-02 13:32, David Cousens wrote:
>>> Stan,
>>>
>>> You seem to be thinking of basis as in "tax basis", but there is a
>>> more
>>> general accounting meaning.  
>>>
>>> The basis of an asset as Michael pointed out will initially be its
>>> cost
>>> of purchase together with any additions to its value. 
>>
>> It's those additions I'm not clear on.  Here's a reprint of the
>> questions I asked Michael; on that point:
>>
>>> So initially I show the account balance for that annuity asset as
>>> what I
>>> paid for it in June 2024. Does it stay that way, or do I adjust
>>> based on
>>> annual statements?
>>>
>>> Say in January 2025 I get my annual statement showing that a Fair
>>> Market
>>> Value (FMV) that is more than I paid. Do I debit my annuity asset
>>> with
>>> the difference and credit Accumulated Unrealized Gains/Losses?
>>>
>>> Payments start in June 2025, so each month I debit Checking Account
>>> and
>>> credit Annuity Income as you suggested.
>>>
>>> In January 2026, let's say my annual statement shows an FMV that is
>>> $7000 higher than (FMV a year earlier) minus (7 × monthly
>>> payments).
>>> Again, do I debit the annuity asset $7,000 and credit Accumulated
>>> Unrealized Gains/Losses. Or does the annuity asset just stay at the
>>> amount I paid, until my death wipes it out?
>>
>>
>> Stan Brown
>> Tehachapi, CA, USA
>> https://BrownMath.com
>