How do I represent a deferred annuity in Quicken?

Bertilak
Bertilak Member ✭✭✭✭
edited January 22 in Investing (Windows)
I just purchased a deferred annuity. It is a contract paid for by an initial fee/investment. 
It is commonly called a "Single Premium Deferred Annuity" (SPDA). It has two key attributes:
  1. A net asset value (NAV) that starts out equal to the initial investment, which is guaranteed to grow by a specific, contracted, percentage called the "Guarantee period interest rate." Example 4%.
  2. The guaranteed period over which this growth will occur, also called the deferment period. Example 5 years.
At the end of the deferment period, the accumulated NAV can be used to:
  1. Extend the deferment by using the accumulated NAV to buy another SPDA contract.
  2. Annuitize (start periodic payments) by using the accumulated NAV to buy a "Single Premium Immediate Annuity" (SPIA) contract.
  3. Take the NAV as cash.
Terms of the new SPDA or SPIA will depend on market conditions at the time of purchase.

First, a Basic question: Is this SPDA an account or an asset within an account?

Whatever the answer to that basic question, just how do I best represent this in Quicken?

In the future, assuming I annuitize this by buying an SPIA, how do I represent the SPIA in Quicken?

Right now, I have the SPDA as an investment account but that is easily changed.

Best Answers

  • NotACPA
    NotACPA SuperUser ✭✭✭✭✭
    Answer ✓
    l'd set it up as a simple Asset account ...  and increase the value each year by that guaranteed interest rate until you start to draw fro it.
    Q user since DOS version 5
    Now running Quicken Windows Subscription, Home & Business
    Retired "Certified Information Systems Auditor" & Bank Audit VP
  • Boatnmaniac
    Boatnmaniac SuperUser ✭✭✭✭✭
    edited January 23 Answer ✓
    I have a USAA deferred annuity with Fidelity.  What I did:
    • Set it up as an IRA account.
    • Set it up as an unmatched security (like a mutual fund or a stock).
    • Entered a Buy transaction for that security in the account register of that IRA account.  If your annuity is, for example, $100K, you could enter a transaction for 100K shares at $1/share...kind of like what you would enter for a Money Market Fund.
    • Periodically I will manually update the value of the annuity by entering a ReinvDiv transaction at a cost of $1/share.
    What I plan to do when the annuity matures:
    1. If I take it as cash:  Enter a Sell transaction with the resulting cash to be transferred to the appropriate account.  In my case it will be a transfer to a different Brokerage IRA account so Quicken will not treat it as a taxable event.  If it were instead to be transferred to a taxable brokerage account or a checking/savings account it will be captured as a taxable event...see this thread about how to do that:  https://community.quicken.com/discussion/7928221/0/#Form_Comment.
    2. If set it up to start taking periodic distributions, instead:  I would keep it in the same account and update it for investment returns with additional ReinvDiv transactions.  With each periodic distribution I would do the same thing as in #1 but with smaller dollar transactions.
    Thoughts?
    (QW Premier Subscription: R44.20 on Windows 11)
  • Frankx
    Frankx SuperUser ✭✭✭✭✭
    edited January 22 Answer ✓
    Hi @Bertilak,

    To answer your first question "Is this SPDA an account or an asset within an account?" - the answer is you can set it up as either an "investment-type account" in Quicken, or as an "investment" within an "investment-type account".  If you plan on making similar investments in the future you might want to go with the latter suggestion, but it really can be either.

    As for the "how do I represent it in Quicken - the short answer is that it should be carried initially at it's NAV (net asset value) on the contract date and you should periodically update the value by accruing interest income.  The entry for the periodic updating would be and increase in the carrying value and an addition to interest income (likely non-taxable interest - unless, or until, you withdraw it).

    And if you buy an SPIA, you could still use the same investment account in Quicken, you'll just need to make entries to record the periodic withdrawals (payments) from the annuity.  Usually, the initial withdrawals are 100% taxable up front and you recover your initial (and non-taxable) investment at the end.

    [N.B. - While there is an informal and brief mention of tax related considerations in the above discussion, the information provided does not represent the provision of tax advice, tax services, nor the preparation of a tax return.  Readers should not act upon any of the above information without consulting their own tax advisors and or attorneys].

    Frankx

                            Quicken Home, Business & Rental Property - Windows 10-Home Version

                                             - - - - Quicken User since 1984 - - - 
      -  If you find this reply helpful, please click "Helpful" (below), so others will know! Thank you.  -

  • Bertilak
    Bertilak Member ✭✭✭✭
    edited January 22 Answer ✓
    To all,

    Thanks for the ideas and advice.

    I created an account and set it up as an "other Investments" account, within which I bought the annuity as an asset, type "other," class "single, other."

    I still have the now-unused account I originally set up to represents the annuity as an account. I'm leaving that open for now in case I change my mind! I still don't have a formal statement nor contract from State Farm (the issuer of the annuity). When that comes in, I'll reassess things. The annuity has a policy number, but I don't see an account number. I associated the policy number with the asset, not the account. I made it part of the asset's name.

Answers

  • NotACPA
    NotACPA SuperUser ✭✭✭✭✭
    Answer ✓
    l'd set it up as a simple Asset account ...  and increase the value each year by that guaranteed interest rate until you start to draw fro it.
    Q user since DOS version 5
    Now running Quicken Windows Subscription, Home & Business
    Retired "Certified Information Systems Auditor" & Bank Audit VP
  • Boatnmaniac
    Boatnmaniac SuperUser ✭✭✭✭✭
    edited January 23 Answer ✓
    I have a USAA deferred annuity with Fidelity.  What I did:
    • Set it up as an IRA account.
    • Set it up as an unmatched security (like a mutual fund or a stock).
    • Entered a Buy transaction for that security in the account register of that IRA account.  If your annuity is, for example, $100K, you could enter a transaction for 100K shares at $1/share...kind of like what you would enter for a Money Market Fund.
    • Periodically I will manually update the value of the annuity by entering a ReinvDiv transaction at a cost of $1/share.
    What I plan to do when the annuity matures:
    1. If I take it as cash:  Enter a Sell transaction with the resulting cash to be transferred to the appropriate account.  In my case it will be a transfer to a different Brokerage IRA account so Quicken will not treat it as a taxable event.  If it were instead to be transferred to a taxable brokerage account or a checking/savings account it will be captured as a taxable event...see this thread about how to do that:  https://community.quicken.com/discussion/7928221/0/#Form_Comment.
    2. If set it up to start taking periodic distributions, instead:  I would keep it in the same account and update it for investment returns with additional ReinvDiv transactions.  With each periodic distribution I would do the same thing as in #1 but with smaller dollar transactions.
    Thoughts?
    (QW Premier Subscription: R44.20 on Windows 11)
  • Frankx
    Frankx SuperUser ✭✭✭✭✭
    edited January 22 Answer ✓
    Hi @Bertilak,

    To answer your first question "Is this SPDA an account or an asset within an account?" - the answer is you can set it up as either an "investment-type account" in Quicken, or as an "investment" within an "investment-type account".  If you plan on making similar investments in the future you might want to go with the latter suggestion, but it really can be either.

    As for the "how do I represent it in Quicken - the short answer is that it should be carried initially at it's NAV (net asset value) on the contract date and you should periodically update the value by accruing interest income.  The entry for the periodic updating would be and increase in the carrying value and an addition to interest income (likely non-taxable interest - unless, or until, you withdraw it).

    And if you buy an SPIA, you could still use the same investment account in Quicken, you'll just need to make entries to record the periodic withdrawals (payments) from the annuity.  Usually, the initial withdrawals are 100% taxable up front and you recover your initial (and non-taxable) investment at the end.

    [N.B. - While there is an informal and brief mention of tax related considerations in the above discussion, the information provided does not represent the provision of tax advice, tax services, nor the preparation of a tax return.  Readers should not act upon any of the above information without consulting their own tax advisors and or attorneys].

    Frankx

                            Quicken Home, Business & Rental Property - Windows 10-Home Version

                                             - - - - Quicken User since 1984 - - - 
      -  If you find this reply helpful, please click "Helpful" (below), so others will know! Thank you.  -

  • Bertilak
    Bertilak Member ✭✭✭✭
    edited January 22 Answer ✓
    To all,

    Thanks for the ideas and advice.

    I created an account and set it up as an "other Investments" account, within which I bought the annuity as an asset, type "other," class "single, other."

    I still have the now-unused account I originally set up to represents the annuity as an account. I'm leaving that open for now in case I change my mind! I still don't have a formal statement nor contract from State Farm (the issuer of the annuity). When that comes in, I'll reassess things. The annuity has a policy number, but I don't see an account number. I associated the policy number with the asset, not the account. I made it part of the asset's name.