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Posted by JM on July 22, 2006, 7:39 pm
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Don R wrote:
> >
> > Don R wrote:
> >> I'm consolidating three annuity contracts into one account using a
> >> 1035
> >> transfer. Two contracts are already in Quicken 2005 as tax free
> >> investment accounts, the third one is not in Quicken yet. What's the
> >> best way to set up this new account in Quicken?
> >>
> >> Should I sell all the shares in the existing accounts and transfer
> >> the
> >> money to the new account? If I do that, how can I keep track of the
> >> basis? There's not much information in Quicken help on this matter.
> >> Any help or advice would be appreciated.
> >>
> >> Thanks, Don
> >
> > I would set up the new account as a tax deferred brokerage account.
> >
> > I would duplicate the 'real-world' as closely as possible. Did the FI
> > sell the holdings and transfer cash - or did they transfer security
> > holdings?
> >
> > As to basis - do you have a cost basis from a future tax standpoint?;
> > i.e., did you make after-tax contributions?
> > If the contributions are/were 100% pre-tax, then your cost basis, from
> > a future tax standpoint, is zero. There is no basis to be concerned
> > about. The draws will be 100% taxable as ordinary income.
> >
> > Post back with more detail if this does not answer your query.
>
> Thanks for the quick answer to my question. I still have some concerns
> about basis. The original accounts were funded with after-tax dollars
> so I do have a basis to worry about.
>
> In answer to your questions, the securities were sold and the cash
> transferred to the new account. Then variable annuity shares were
> purchased in the new account.
>
> What's the best way to set up my basis when I create the new Quicken
> Brokerage account?
> Don
I think this gets complicated and not sure I have an answer or if QW
can handle it easily.
Let my briefly recount my experience with a 401k and perhaps there is a
parallel. I made both pre-tax and after-tax contributions to a 401k
account. The cost basis [for future tax purposes] is the sum total of
all after-tax contributions. Any gain attributed to the after-tax
contributions was tax free and essentially co-mingled with the pre-tax
contributions, and their gain. Thus, any gain [or loss] from the
after-tax contributon performance did not affect the cost basis. The
after-tax funds will be withdrawn tax-free [up to the total of
contributions] and everthing else is ordinary income. The split is on a
pro-rata basis and is recalculated each year using some special IRS
form.
I tracked these contributions in QW using classes; appending '/PT' or
'/AT' to the transactions. I can easily recreate the totals by running
a class report. Years ago I had tried to track performance for AT & PT
separately [thinking at the time it was significant] but could not come
up with a method in a single account - needed sub-accounts I think.
Speculating now for your situation - seems your cost basis would be the
after-tax contributions and that it would not change with performance.
If this reasoning is correct, you would first go back and determine
what that basis is for each account [the after-tax contributions].
Would then make two cash transfers from each old account to the new
account; one cash transfer earmarked after-tax and one earmarked
pre-tax. This will clearly document basis for future use. I don't think
QW's cost basis calculations are applicable here as events such as
re-investment of earnings on securities will have altered the original
cost basis.
If you don't get a definitive answer here on what is the true basis
[something better than my speculation :<)], you might want to try a
search and/or query in Googles' misc.taxes.moderated forum. Seem to be
some very knowledgible tax folks hanging out there. Picked up on how to
handle my 401k situation from searching the archives.
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