Entry of Annual Deferred Salary Payments

I would enter the balance as a tax deferred account. Then create 9 years of scheduled withdrawals that deplete the balance. You can manipulate the withdrawals into pieces to mimic what the actual expected amounts are. This then will pretty much be accurate from a tax perspective as you have most likely already paid employment taxes (FICA) but will have to pay income taxes on the withdrawals. You can then also model the growth in this account based on how you have it invested.

@jj_ejm009_jj0 Thanks James, however, there's really no way of anticipating what the expected amounts will be given market volatility (esp. these days). You are correct that FICA was deducted when I was working/deferring. Income tax (fed and state) was not. I assume I'd enter the current balance on the Assets page, but where do you break out the 9 yrs of withdrawals and estimate growth? How is this different (better) than just setting up as an additional income stream?

NC

My objection to treating this as income is that you already have the money as part of your net worth. To me, income is something that you receive that is outside of any account you have current ownership and visibility to. Similar to an IRA, you may not be able to easily spend this money right now, but it is part of your net worth. If you were to pass away, it would not disappear as an arbitrary income stream may.

You could look at treating it as an Inherited IRA, or if you have a spouse that does not have a traditional IRA use that as a place holder. If this is possible, it could allow some flexibility in setting the account asset allocation and thus the expected return and volatility. This may also allow you to control how the account empties through scheduled withdrawals or substantially equal periodic payments.

I agree it's "already earned income" that would not disappear if either of us were to pass away. That said, if it's considered tax-deferred, wouldn't taxation be differently than regular income? I don't see "Regular Income" as an option on the Asset Class taxation page. What about any negative impact by having a much larger tax-deferred balance (larger RMD's) ? I also don't see the page to set up the scheduled withdrawals.

By contrast, if it's an income stream I can designate regular income taxation, and that 100% goes to a survivor, and the "estimated" payouts for the remaining years.

When you realize income from a tax deferred account, it is taxed similar to income from wages in that year. If you lump your deferred salary (409a non-qualified plan ?) amounts with any other deferred accounts (401k/IRA), then yes the calculated RMD values will likely be inflated. If you are > 9 years from RMD age, you could combine the amounts and then schedule appropriate withdrawals that would deplete the deferred salary amount before the RMDs take effect. If you use a proxy inherited IRA account to represent the deferred salary, I believe you could avoid any RMD co-mingling.

Scheduled withdrawals are under FINANCIAL ASSESTS->Management. Note: I have not yet upgraded to PRC 2023, I assume it has not moved.

PRC is flexible enough that you can really do this several ways, whatever suits you best.

@jj_ejm009_jj0 Given your explanation I feel I'd be creating a few new issues that don't exist presently. First, if it inflates RMD's, that will throw off QCD's I'm calculating to specifically offest RMD's, so now my QCD's would be over-inflated to compensate. Also, I'm less than 9 yrs from RMD's starting, and , I cannot accelerate the payouts, they are on an schedule that cannot be changed.

In that case, if either you or your spouse do not already have an inherited IRA, I would use this as a proxy. This has the advantage that you can specify its own asset allocation and withdrawal schedule independent of your other deferred accounts. You can then also separately track it in the tabular results. If not then as you have indicated a fixed income stream with the modeling downside of no statistical variation could work.

I just jointed the Pralana online family and discovered that it does not have a built-in way to deal with deferred salary. It took me only minutes to create a spreadsheet that did the calculations for me, but I'd like Pralana to do the heavy lifting instead.

SO here's a feature request: please support calculations of deferred salary income using a "R" wildcard (so that I actually can run scenarios involving my retirement date). For my scenario, my deferred income will be paid out in yearly payments over 15 years. Assuming a 5% growth (the deferred salary can be invested), I would predict the following payouts for $100,000 deferred income:

Short of actually implementing support in Pralana, what's the best way to mimic this income (short of typing in the numbers myself for every year)?

@deniseandkarelgmail-com Hi Karel, thanks for your input, and we'll add this to our list of candidate enhancements. The only portion of this that cannot be supported currently is to limit the duration of the payments to a specific number of years, such as 15 in your case. As a result, that greatly limits the power of starting this stream of payments with an "R" for the start date. That said, you can use either an employment, pension, or other income stream to specify that you have an income stream that starts at $6666 annually and grows at 5%, but you will need to specify the exact start and stop years. Ideally, I suppose, the start year could be R and the stop year R+15, but that capability isn't currently available.

Stuart

@deniseandkarelgmail-com I just changed a deferred income account (Savings Excess Plan or SEP) in my Pralana Online model from Taxable with withdrawals to the "proxy" Inherited IRA (spouse) method Mr. Mittel suggested and it corrected a tracking delta I'd been seeing ever since I created my original model. With the added benefits of seeing the withdrawals broken out, the tax treatment, and the allocation and RoR control, the proxy approach seems like a winner in my case, for now, at least.

Thanks all for the follow-up. For now, I modelled this as a 15-year pension with 5% increase every year starting at my tentative retirement date. That seemed to do the trick.

@smatthews51 The ability to indicate some thing like "R +15" would be useful. For example, frequently clients want to indicate LTC expenses for their last three years of life. So if they put 90 in their longevity field, they put 87 or so in the LTC start age. But if they change their longevity to test longevity risk, I often see them forgetting to adjust the field in the LTC start date. This would prevent that error.

@hines202 I agree, it would be a nice enhancement and am adding it to our candidate list of enhancements.

Stuart