Annuities

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Jeffrey Kirk
Jeffrey Kirk Member ✭✭✭
edited June 2023 in Investing (Windows)

I have a non-qualified annuity I purchased back in 2005 for $54,500. In 2010, I entered into a 1035 exchange and received another annuity with same terms and conditions as first. At the time of the exchange, the value of the annuity was $74,143.78. Since then I have been recording the various monthly increases and decreases in the value of the annuity by adding/removing shares @ $1.00. How do I adjust the value and the basis so that only the $52,500 shows up as cost and everything since then as nontaxed additions?

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  • Tom Young
    Tom Young SuperUser ✭✭✭✭✭
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    "How do I adjust the value and the basis so that only the $52,500 shows up as cost and everything since then as nontaxed additions?

    The value is the value is the value and it's presumably correct, so you don't change that. You don't say so, but I assume that when you made the exchange you "sold" the old annuity at no gain or loss and "bought" the new one for that $74,143.78? What you should have done is not sold the old annuity, maybe do a "Name change" action just to signify that the annuity was now not the old annuity, and kept on going.

    There would be nothing wrong with going back to that (assumed) original set of transactions and deleting them. Those transactions had no effect on your Income and Expense report nor you Net Worth report and left the cash in the Account unchanged, so deleting them would do nothing more than continue using the original basis.

  • Jeffrey Kirk
    Jeffrey Kirk Member ✭✭✭
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    Thanks Tom. But how do I record the monthly increases/decreases in value? Historically, I have recorded them as "Additions" or "Removals" of shares (@ cost of $1.00 per share), but this adjusts the basis as well. Should I have instead recorded the increase/decrease as additions/removals with no cost?

  • Jim_Harman
    Jim_Harman SuperUser ✭✭✭✭✭
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    If you are not making contributions to the annuity, you can adjust the share price to reflect the changes in value. The best way to convert to that method depends on how much historical adjusting you have the patience to do.

    If you want to start on Jan 1 of this year and the 12/31 value was $123,456, you could set up a new security to show the values going forward. Remove your 123,456 shares at $1.00 each and Add 1,000 shares of the new security @ $123.456. If the value on 1/31 was $124,567, you would set the 1/31 share price to $124.567 and so on.

    If you want, you could go back in time, removing the old shares and adding the new ones on the same date or once per quarter or whatever, so that the total value of the account remains the same.

    You may want to think twice about including the value of the annuity in your net worth, depending on whether you can actually access that money. Also the cost basis may not really mean much because any money you take out may be taxed as income and not as capital gains. Consult your tax advisor.

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  • Tom Young
    Tom Young SuperUser ✭✭✭✭✭
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    The "value" is quote x # of shares. So you could simply leave your share number alone and change the quote. That won't change the basis.

    If you want to continue adding and removing shares you can do that without specifying any basis for those "shares." That changes the "value" - quote x (a different number of shares) - without changing basis.

  • Jeffrey Kirk
    Jeffrey Kirk Member ✭✭✭
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    Excellent resolution, Tom.

    Thanks to all for responding.

This discussion has been closed.