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Quicken Classic for Mac
Paying Bills, eBills & Scheduled Transactions (Mac)
Setting Up Income from an Annuity
Moskose
I'm still new (4 weeks now) so I have a question about properly entering annuity income. Originally, I set the income up as a monthly income payment (out of "thin air"), with a split, so the total income was reported and tax was split out. This way, the net income agreed with my monthly automatic deposit and the tax was accounted for as well. I just realized that, to properly show the entire picture, I needed to add a new account (AIG 10 Yr Annuity) which shows the funds currently in the annuity and the monthly payment should be a transfer from the Annuity account, to my bank account. I added the Annuity account, set the opening balance to today's balance, and edited the scheduled monthly income transaction by going to the Category/Splits box, and filling in the new AIG 10 Yr Annuity in the Transfer field (3rd column in the Splits dialog). Did I do this correctly so each month, when the annuity deposit comes in, it will transfer the amount from the AIG account, to my bank account?
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Accepted answers
Frankx
Hi
@Moskose
,
Just a word of warning here first - I am a Q Windows user, so this may not translate all that well. But it sound to me that you've done should be okay.
Here's the way I believe you were initially accounting for these entries:
Deposit to bank account [asset account] (dr) 100.00
Tax withheld [expense account] (dr) 10.00
Income from Annuity [income account] (cr) 110.00
And I think that you've changed this to the following:
Deposit to bank account [asset account] (dr) 100.00
Tax withheld [expense account] (dr) 10.00
Annuity Account [asset account] (cr) 110.00
So the monthly transactions now draw down on the annuity asset rather than being recorded as income, which makes sense because you have established the asset account at its present value.
Hope this helps.
Frankx
Tom Young
Annuities are a tough nut to crack and I'm not sure exactly what you really want to achieve here.
Presumably the annuity account is still earning income of some sort and next month's "today's balance" won't change by exactly the amount of the next disbursement, meaning some other entry needs to be made, and that balance may reflect a "surrender value" that doesn't reflect it's correct "present value" based on actuarial assumptions. Also, if the annuity was funded with pre-tax dollars then the distribution is income that needs to show up in your income tax return and right now it's simply a "transfer" within Quicken. In the Windows version there's a trick whereby the transfer can show up as "income" in an Income and Expenses statement and maybe the Mac version allows that too.
Once you have a disbursement or two under your belt you may want to come back here and revisit the accounting.
Frankx
Hi again
@Moskose
Just wanted to weigh in here again. In my view, the two key points are:
a) the "annuity" is an asset that you own and should be accounted for as an asset. There is no "magic" in an annuity and the fact that you purchased the annuity using funds that were part of an IRA doesn't change a thing as far as financial reporting goes - in other words both the original IRA account and the annuity you purchased are "assets" and should be reported as such in Quicken.
b) the fact that the IRA was converted to an annuity - was a simple matter of the "form" of your investment. Distributions from either "an IRA account" or "an annuity that was created from IRA funds" are fully taxable in the year received, and you should classify them as "taxable" in Quicken.
As far as the maintenance of the "balance" of the annuity account is concerned, over time - there may be some "appreciation" or perhaps (but not likely) "depreciation" of the balance beyond the periodic distributions you receive. Those amounts, if any, will not be significant to you because the creation of the annuity removed the "risk" from your shoulders and placed it onto AIG's. Therefore I would suggest that you consider monitoring the balance perhaps annually, but expect that the chance of it being significantly different from the balance that Quicken will compute based on your transactions is remote.
Let me know if you have any followups.
Frankx
All comments
Frankx
Hi
@Moskose
,
Just a word of warning here first - I am a Q Windows user, so this may not translate all that well. But it sound to me that you've done should be okay.
Here's the way I believe you were initially accounting for these entries:
Deposit to bank account [asset account] (dr) 100.00
Tax withheld [expense account] (dr) 10.00
Income from Annuity [income account] (cr) 110.00
And I think that you've changed this to the following:
Deposit to bank account [asset account] (dr) 100.00
Tax withheld [expense account] (dr) 10.00
Annuity Account [asset account] (cr) 110.00
So the monthly transactions now draw down on the annuity asset rather than being recorded as income, which makes sense because you have established the asset account at its present value.
Hope this helps.
Frankx
Moskose
Thanks for the quick reply! Yes, your summary of the accounting is correct. The only detail to add is, in the Q Mac app, when I realized I needed to add the annuity account and show the deposit to the bank account as a transfer, I thought I might need to delete the scheduled "income" transaction but when I opened the Splits dialog, there was a column noted as "Transfer" and when I clicked in this field, a list of my accounts opened and all I needed to do was select the Annuity account. This was so easy to do that it felt like it was the correct way to do it. I'll know for sure when the next transaction automatically runs per my schedule and I'll check to make sure the amount was deducted from the annuity account. Thanks!
Frankx
That sounds like you're all setup. Happy to help - take care!
Frankx
Tom Young
Annuities are a tough nut to crack and I'm not sure exactly what you really want to achieve here.
Presumably the annuity account is still earning income of some sort and next month's "today's balance" won't change by exactly the amount of the next disbursement, meaning some other entry needs to be made, and that balance may reflect a "surrender value" that doesn't reflect it's correct "present value" based on actuarial assumptions. Also, if the annuity was funded with pre-tax dollars then the distribution is income that needs to show up in your income tax return and right now it's simply a "transfer" within Quicken. In the Windows version there's a trick whereby the transfer can show up as "income" in an Income and Expenses statement and maybe the Mac version allows that too.
Once you have a disbursement or two under your belt you may want to come back here and revisit the accounting.
Moskose
GREAT build Tom - I will check this as well! The next disbursement is due on Oct 29.
The account it transfers from was set up as an IRA so, hopefully, Quicken will recognize this as income. The original transaction was set up as an income transaction, then I was able to add the transfer "dimension" in the Splits dialog and select the Annuity IRA account as the source of the transfer.
Thanks!
Moskose
PS - My understand on the annuity value is that the face value is the "fixed" max value on the day I bought the annuity and all the interest and appreciation earned goes to AIG, who sold the annuity to me - they will pay out the face value over 10 years and the rest is theirs. The online account reflects the current value as the original amount, less the disbursements.
Moskose
OK, the PS was confusing because the actual payout does include some interest/appreciation but this was defined in the original contract, and the monthly payout schedule increased a bit as we waited an extra year to start taking disbursements. The annual statement I get from AIG shows the disbursements as income to me. I'll compare the 2020 about to what Quicken shows at year end to see if anything else is added to the income that I don't see on the monthly payment. Thx!
Frankx
Hi again
@Moskose
Just wanted to weigh in here again. In my view, the two key points are:
a) the "annuity" is an asset that you own and should be accounted for as an asset. There is no "magic" in an annuity and the fact that you purchased the annuity using funds that were part of an IRA doesn't change a thing as far as financial reporting goes - in other words both the original IRA account and the annuity you purchased are "assets" and should be reported as such in Quicken.
b) the fact that the IRA was converted to an annuity - was a simple matter of the "form" of your investment. Distributions from either "an IRA account" or "an annuity that was created from IRA funds" are fully taxable in the year received, and you should classify them as "taxable" in Quicken.
As far as the maintenance of the "balance" of the annuity account is concerned, over time - there may be some "appreciation" or perhaps (but not likely) "depreciation" of the balance beyond the periodic distributions you receive. Those amounts, if any, will not be significant to you because the creation of the annuity removed the "risk" from your shoulders and placed it onto AIG's. Therefore I would suggest that you consider monitoring the balance perhaps annually, but expect that the chance of it being significantly different from the balance that Quicken will compute based on your transactions is remote.
Let me know if you have any followups.
Frankx
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