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How to track an annuity in Quicken Mac

jacobs

I just noticed this, although it's not new: in Quicken Mac's default — and user un-modifiable —Investments sub-categories, there are two sub-categories for Accrued Interest which have a Type=Expense rather than Type=Income. Why would these be expenses?

It's not clear to me what Quicken intends the two Accrued Interest categories to be used for, different than the regular Interest Income categories. But in an investment account, making a Type=Miscellaneous transaction in order to record interest, only the Accrued Interest categories are available; the (non-accrued) Interest categories are not.

Let me explain the use case I'm having, and perhaps someone can correct me if I'm doing it wrong.

I have an annuity in a brokerage (non-retirement) account. The annuity annual posts interest earned. This interest is not paid out, and is not taxable; it simply accrues and adds to the value of the annuity. So how should I record this in Quicken to reflect the current value of the annuity? I've been recording it as a Miscellaneous transaction using the category "Investments:Accrued Interest Tax-Free":

Why this category? Because no other investment category available works; here are the only choices from the dropdown menu:

(And remember, in Quicken Mac, users cannot edit or add to Investments sub-categories.)

To me, "Accrued Interest Tax-Free" seemed a logical category choice, as that's exactly what this annuity interest credit is.

(Why not instead record it as a Type=Interest transaction? Because then the interest would show up as taxable income — which it is not — on Schedule B.)

This works fine, except that on Schedule B, and in the Income & Expense Dashboard, this income shows up under expenses, as a negative expense. That is, it is signed correctly as income, so the bottom line for everything is correct — but it should be counted as Income, not as a negative Expense.

So: am I recording this type of transaction incorrectly? Or is Quicken incorrect in having these two accrued interest sub-categories carry a type of Expense rather than Income?

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Jon

IIRC, if you sell a bond before it matures, the buyer has to pay you for the interest you’ve earned but not collected yet. The buyer eventually gets that money back when the bond matures. This interest is referred to as Accrued Interest and is an expense for the buyer.

jacobs

Thanks, @Jon. But I'm not talking about a bond here. I'm talking about actual interest earned within an annuity. If using the Accrued Interest category is not the right way to record this, how would you do it? It's not money paid out, so it's not taxable income. How would you record that in Quicken?

I just asked ChatGPT, and it suggests first marking the custom security I'm using for the annuity as tax-free, and then recording the interest credit as a reinvested dividend. That feels a little odd, but I guess would work. (It also suggests an alternative of creating a stock split to increase the value of the security without generating income; that might work, but just feels like the wrong way to do this!)

Jon

Sorry, I was in the middle of making dinner so only addressed why Accrued Interest would be included in expenses.

In the past when I had unpaid interest I wanted to track for a custom security, I simply adjusted the security price so the interest was included in the total value of that investment. When the interest eventually got paid I reduced the price accordingly. The main downside to this approach is that the interest is not a separate value you can get reported. If that’s something you need then ChatGPT’s approach might be preferable.

jacobs

The thing I'm trying to be mindful of is the end game: when the annuity matures, or as I take the allowed annual withdrawals it allows (up to 10% a year), I need to know how much of the value of the annuity was my original investment — which comes out tax-free — and how much is interest that has been credit annually — which is taxable when withdrawn (unless the annuity is held in a tax-deferred or tax-free retirement account). So maybe the reinvested dividend approach makes more sense?

Quicken Kristina

Hello @jacobs,

Thank you for bringing this to our attention. I see the same thing in my file, and I forwarded the issue of Accrued Interest showing as an expense to the proper channels for further investigation.

Thank you!

(CBT-1283)

MontanaKarl

if you purchase a bond (taxable or tax exempt) on any date in between its periodic interest payments, the purchase price includes both principal and accrued interest. The expense category is used for this situation. No other accrued interest (income/receivable) is “booked” until received as Quicken uses cash and not accrual accounting.

jacobs

@MontanaKarl Okay, that's for bonds. I'm asking how to track an annuity. The purchase price does not reflect the future value of the annuity (because it's not fixed in advance like a bond). So my question is how to increase the value of the annuity account when interest is credited each year, and without that interest showing as taxable interest income.

MontanaKarl

Sorry, yeah, I was just addressing the issue of why it is an expense. :-)