What is best approach to setup a defined benefit pension plan?

My wife is a retired teacher who is receiving a monthly pension payment. Thank you.

Best Answers

  • Bob_L
    Bob_L SuperUser ✭✭✭✭✭
    edited January 18 Accepted Answer
    I would just set it up as an income reminder with automatic entry.  Do that from the top of reminders page at CTL -J.  If there are taxes withheld make it a split transaction.
    Quicken Premier Subscription, Windows 10 Home
  • q_lurker
    q_lurker SuperUser ✭✭✭✭✭
    Accepted Answer
    There are various ways to value a defined benefit pension, so in part the best setup needs to know your wants and expectations.  Certainly the simplest is to simply schedule transactions - deposits into the bank. 

    If you want to value the pension for net worth or long term planning, something else more elaborate might be used. 

    Personally, I think I'd try to keep it simple.  
  • Jim_Harman
    Jim_Harman SuperUser ✭✭✭✭✭
    Accepted Answer
    To record the income and have Quicken capture the taxes correctly, you will want to set up Categories with the correct tax line items. You might do something like
    Category              Tax line item
    Pension Income     1099R: Total Pension Gross distrib
    Pension Fed WH    1099R: Pension Federal Tax withheld
    Pension State WH  1099R: Pension state tax withheld


    Then you can set up a split deposit transaction or use the Paycheck Wizard to set up a paycheck with these categories. Choose Gross pay as the paycheck type.
    QWin Premier subscription
  • Jim_Harman
    Jim_Harman SuperUser ✭✭✭✭✭
    Accepted Answer
    It sounds like when she started receiving the pension payments, the pension account was converted to an annuity. It pays every month as long as she is alive and can never run out, right?

    If so, then I would not consider the pension account as an asset and I would just record the payments from it as income. You can zero out the pension account balance with a transfer of the cash balance to the same account. 
    QWin Premier subscription
  • Bob_L
    Bob_L SuperUser ✭✭✭✭✭
    Accepted Answer
    Does the pension check include a return of her contributions as non-taxable?  If so then only that portion of her payment should have been used to reduce that pension account you set up.  In theory you could go back and fix all of those past transactions but I personally don't think keeping track of those cumulative contributions accomplishes much.  I would just wipe out the balance in that pension account using a transfer back to that same account as @Jim_Harman suggested. Then going forward this year use a reminder income deposit split between taxable pension income and non-taxable pension/other income. 

    Backup first
    Quicken Premier Subscription, Windows 10 Home

Answers

  • Bob_L
    Bob_L SuperUser ✭✭✭✭✭
    edited January 18 Accepted Answer
    I would just set it up as an income reminder with automatic entry.  Do that from the top of reminders page at CTL -J.  If there are taxes withheld make it a split transaction.
    Quicken Premier Subscription, Windows 10 Home
  • q_lurker
    q_lurker SuperUser ✭✭✭✭✭
    Accepted Answer
    There are various ways to value a defined benefit pension, so in part the best setup needs to know your wants and expectations.  Certainly the simplest is to simply schedule transactions - deposits into the bank. 

    If you want to value the pension for net worth or long term planning, something else more elaborate might be used. 

    Personally, I think I'd try to keep it simple.  
  • Jim_Harman
    Jim_Harman SuperUser ✭✭✭✭✭
    Accepted Answer
    To record the income and have Quicken capture the taxes correctly, you will want to set up Categories with the correct tax line items. You might do something like
    Category              Tax line item
    Pension Income     1099R: Total Pension Gross distrib
    Pension Fed WH    1099R: Pension Federal Tax withheld
    Pension State WH  1099R: Pension state tax withheld


    Then you can set up a split deposit transaction or use the Paycheck Wizard to set up a paycheck with these categories. Choose Gross pay as the paycheck type.
    QWin Premier subscription
  • lhhamp
    lhhamp Member ✭✭
    Thanks for the replies. My specific issue is that while an active employee she was contributing to the state retirement system. I had setup a transaction in Quicken for each monthly paycheck reflecting the employee amount contributed to the pension account. She has been retired now for almost five years and receives a monthly pension check, and I setup a transaction in Quicken reflecting the amount reduced from the pension account. Now the balance of the pension account is negative and continues to increase with each monthly pension payment which impacts my net worth calculation. I know I can exclude the pension account from the net worth calculation, but I was not sure if that is the best approach. Thanks.
  • Jim_Harman
    Jim_Harman SuperUser ✭✭✭✭✭
    Accepted Answer
    It sounds like when she started receiving the pension payments, the pension account was converted to an annuity. It pays every month as long as she is alive and can never run out, right?

    If so, then I would not consider the pension account as an asset and I would just record the payments from it as income. You can zero out the pension account balance with a transfer of the cash balance to the same account. 
    QWin Premier subscription
  • Bob_L
    Bob_L SuperUser ✭✭✭✭✭
    Accepted Answer
    Does the pension check include a return of her contributions as non-taxable?  If so then only that portion of her payment should have been used to reduce that pension account you set up.  In theory you could go back and fix all of those past transactions but I personally don't think keeping track of those cumulative contributions accomplishes much.  I would just wipe out the balance in that pension account using a transfer back to that same account as @Jim_Harman suggested. Then going forward this year use a reminder income deposit split between taxable pension income and non-taxable pension/other income. 

    Backup first
    Quicken Premier Subscription, Windows 10 Home
  • lhhamp
    lhhamp Member ✭✭
    Thank you @q_lurker , @Jim_Harman and @Bob_L for your valuable replies. I have made some adjustments and this setup while simple is so much better. :) :) :)