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Entry of Annual Deferred Salary Payments

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 NC
(@nc-cpl)
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Not certain how to enter annual deferred salary payments that will span the next 9 years (2023-2031 inclusive). This is paid out once a year until the balance is depleted in 2031. Money is invested similar to any brokerage account, and taxed as regular income when paid. Payments can and will change over time based on investment performance.

I currently have it set up as "Other Income Stream #1" and "Other Income Stream #2" since the payments drop by 50% starting in 2027 due to differing amounts of deferment each year while working. My questions are 1) is this the right place to enter this type of income and 2) if annual payments change over time, isn't putting them in as an income stream treating them as static over the years specified? Is there a better way to account for their potential to rise/fall over time? Also, 3) how can I account for any ROR since this money is invested same as our brokerage accounts? The "Annual % Increase" of a income stream seems to be referring more to an annual salary increase which would not be the same.

This topic was modified 7 days ago 2 times by NC

   
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(@jj_ejm009_jj0)
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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.


   
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 NC
(@nc-cpl)
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@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?


   
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(@jj_ejm009_jj0)
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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.


   
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 NC
(@nc-cpl)
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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.

This post was modified 7 days ago 4 times by NC

   
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(@jj_ejm009_jj0)
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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.


   
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 NC
(@nc-cpl)
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Topic starter  

@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.

This post was modified 7 days ago 3 times by NC

   
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(@jj_ejm009_jj0)
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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.


   
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