[GNC] When income is not income

Thu Jul 3 17:28:17 EDT 2025

I appreciate the information.

On Thu, Jul 3, 2025 at 4:14 PM Stan Brown (using GC 4.14) <
stan+gc at fastmail.fm> wrote:

> On 2025-07-03 13:39, R Losey wrote:
> > On Thu, Jul 3, 2025 at 1:17 PM Stan Brown (using GC 4.14)
> > <stan+gc at fastmail.fm <mailto:stan%2Bgc at fastmail.fm>> wrote:
> >
> >     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.)
> >
> >
> > Right. You absolutely need to keep up with dividends in things like
> > IRAs.  However, part of the FMV is the price of the thing; that isn't as
> > critical, in my opinion, as (at least here), the RMD is calculated from
> > the price at the end of the year. I choose not to use the quote option,
> > and just have the prices update as transactions occur.
> >
> > But (and this is where I am uncertain about annuities), I'm not sure
> > there is any point in doing this for an annuity... You actually don't
> > own it any longer... they just have to pay you a monthly income,
> > regardless of whether it gains or loses money. You could, if you wanted
> > to, treat the money that was used to set up the annuity as an annuity
> > setup expense, and then just have the monthly money coming in as annuity
> > income. It's rather like a salary in that respect, except that you gave
> > them a fixed amount of money, and they pay you regularly.
>
> I'm not quite clear what your "doing this" refers to. If you mean
> tracking the details of the change in FMV, I agree that it seems kind of
> pointless because it won't affect the income I receive from New York
> Life in the following year.
>
> But if you mean paying attention to the FMV itself, without inquiring to
> where it comes from, then that's important to computing the RMD on my
> Vanguard IRA. Here's an example:
>
> Assume that the IRS says, based on my age, I must withdraw 6% of my IRA
> as an RMD. Assume the annuity FMV is $100,000 and the IRA holds $300,000.
>
> Under old legislation the annuity must pay me at least 6% ($6,000), and
> I must withdraw at least 6% ($18,000) from my IRA. But the annuity pays
> me $10,500, on a schedule and not on my demand. So my total retirement
> withdrawal is $10,500+$18,000 = $28,500.
>
> But under the newer legislation (The Secure 2.0 Act of 2022), I
> aggregate $100,000+$300,000 = $400,000, and my combined RMD is 6% of
> that, $24,000. The annuity will pay $10,500, and I need withdraw only
> $24,000-$10,500 = $13,500 from the IRA. Thus I defer income tax on the
> $4,500 difference to a later year, which is a good thing.
>
> >
> https://irahelp.com/slottreport/new-law-could-reduce-rmd-rules-annuitized-annuities-proper-valuation-needed
> >
> > Excerpt:
> >
> > "[Before Secure 2.0] ... For the other (non-annuitized) funds, RMDs are
> calculated under the usual rule (prior- year 12/31 account balance divided
> by the owner's life expectancy factor). But for the annuitized part, the
> annuity payments received during a year are considered the RMD for that
> year.
> >     "This amount of total payments is typically much larger than the RMD
> that would be required if the annuitized part was determined under the
> usual RMD method. However, before SECURE 2.0, this overage couldn't be
> credited against the RMD for the other IRA funds. In other words, there
> were two separate RMDs - one for the annuitized portion and one for the
> remaining funds - that couldn't be aggregated.
>
>
> Stan Brown
> Tehachapi, CA, USA
> https://BrownMath.com
>

-- 
_________________________________
Richard Losey
rlosey at gmail.com
Micah 6:8