How do you enter an asset that earns 0% nominal interest
My mother is retired and is going to move to a retirement community. The retirement community has a buy-in fee ($267k). 90% of the buy-in fee ($240k) is available to be spent at a later date (she can start to spend it in the retirement community when her other assets are depleted; any remaining balance going to her estate when she passes or comes back to her if she moves out of the retirement community). The buy-in fee rebate does not earn any interest. Here is how I modeled this: I entered the $240k buy-in rebate as her only retirement account and set the retirement account nominal interest assumption to 0%. I entered her retirement accounts (IRAs only) and her other assets as regular assets earning 3% nominal interest. Is there a better approach to enter the $240lk buy-in rebate?
Sun, 08/25/2019 - 22:49
Well, the problem with using
Well, the problem with using the IRA for this is that the annual withdraws are treated as taxable, and then using regular assets is not going to treat those withdraws as taxable.
So she has retirement accounts, an IRA you say, so I think I'd leave that as an IRA and set up the smooth withdraws or special withdraws from that. This way that tax is correct and the interest earned on that is correct.
So that leaves the 240K. It sounds like the tricky part is knowing how that will be withdrawn? I think I'd leave that as regular assets at 0% interest (assuming that's the sum total of what she has for non-retirement assets).
So perhaps enter the regular asset balance as 267,000 and enter a special expense of 27,000 as the buy in cost she doesn't get back. That leaves the 240,000 at 0% interest and the program will show the dissaving pattern. But if the nursing home won't let her spend that til the IRA is gone? then perhaps it's easier to just set your IRA to have a last withdraw date so that this money is liquidated by some certain year in the future. Then, in the next year, give her a special receipt of 240,000 nominal dollars which will show up in her regular assets along with a dissaving pattern.