1035 Annuity Transfer in Quicken 2005

Posted by Don R on July 22, 2006, 9:54 am

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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

Posted by JM on July 22, 2006, 11:50 am

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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.

Posted by Don R on July 22, 2006, 12:36 pm

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> 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

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.

Posted by Don R on July 22, 2006, 10:55 pm

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I understand the difficulty of keeping track of your basis in a 401K
account that has both pre tax and after tax contributions. Fortunately
in my case, the annuity contributions are all after tax.

I started to set up a new brokerage account in QW and discovered that
you can enter the basis for the account during setup. That should take
care of my problem for now. Thanks for the reply to my questions.

Don