Hi David The main reason for my suggested approach is that the relevant income is still earned at the time the contributions are initially made and at the time the fund earnings are credited to the account. It is only that the tax on these earnings is deferred until the RRSP is converted to an RRIF and funds are withdrawn from the RRIF and it is taxed at a current marginal rate not the original rate.
We have similar but not exactly the same tax deferred retirement savings schemes in Australia, hence my interest. I am fortunately past the accumulation phase and in the retirement phase. I track the fund separately from my daily accounts and simply treat the payments from the fund as income in my personal accounts and an expense in my accounting of the fund which is in reality done by my bank which administers it for me. We have schemes in Australia which have different tax statuses depending on whether tax was fully deferred on input so I have income streams which are taxed on withdrawal and others which are not, to complicate the accounting. This approach has always been vaguely dissatisfying for me though as the fund is an asset and will form part of my estate when i drop off the perch and I feel it should be able to be incorporated in my personal accounts if only to simplify things for my executor (the likely executor is fortunately an accountant). Mike Novak makes a lot of valid points about the vesting of and accounting for employer contributions which may apply to retirement fund accounting generally, but not specifically to the RRSP-RRIF system in Canada which is largely designed for self employed people to set up retirement funding and to similar self managed and commercial funds in Australia. The accounting also has to reflect the legislative framework which supports and establishes a particular type of fund and its terms and conditions. That said as long as you have captured the essentail data at any point in time, you can always adjust the approach in the future if necessary. Nevertheless it should be possible to extract some broad general principle accounting methodology from which to develop specific adaptions to individual circumstances. That was my purpose in trying to identify the 5 essential assumptions/features behind the RRSP-RRIF system in Canada in looking at this. I had considered setting up of a long term Liability account for the deferred tax. The only problem with this is while in the contribution phase any tax liability calculations will be estimates only as you will likely not know precisely the marginal tax rate which may apply when you are in the retirement phase. This would then introduce the complication of having to make adjustments to these estimates once in the retirement phase and withdrawing funds and paying tax on the withdrawals. My financial advisor and I did some estimates of the future tax liabilities under various scenarios for example when setting up my finances for retirement mainly for comparison of the advantages of using different fund structures but these were only ever estimates. However incorporating this into your accounts may serve some purpose if you specifically want to monitor the ultimate actual performance of your retirement strategy vs your expectation of that performance. I personally did not see any particular advantage in this level (deferred tax liability) of recording of my finances as individual calculations for possible strategies at the planning phase are much more useful to me and once I have committed to a strategy I will follow it unless circumstances change sufficiently that there is a benefit in adopting an alternative strategy and the possibility of changing strategy exists in any case. I prefer a looser form of monitoring with occasional spot checks. I also have performance reports from my financial institution which partly serve this function. I understand Cam's objective of trying to get the fund withdrawals to appear in a standard income report and if his approach works for him and provides the necessary information he needs, then that is fine provided he is aware of the possibility of he may introduce a distortion elsewhere in his accounts, which he may purposefully ignore. The only concern is someone else adopting a procedure without being aware of the possible distortion it may produce. An accountant may have a fit but as long as the taxman and the user are happy - no problem. This is however more likely to be true, if the accountant is also happy. I am going to continue to see if I can find an approach which is more intellectually satisfying and rigorous in accounting terms. The problem is really how to account for the conversion of an asset to an income stream in the same set of books. Concepts associated with the recording and sale of long term assets are one possibility to have a close look at. Cheers David Cousens ----- David Cousens -- Sent from: http://gnucash.1415818.n4.nabble.com/GnuCash-User-f1415819.html _______________________________________________ gnucash-user mailing list gnucash-user@gnucash.org https://lists.gnucash.org/mailman/listinfo/gnucash-user ----- Please remember to CC this list on all your replies. You can do this by using Reply-To-List or Reply-All.
