What Type of Account is an Annuity Account

Question

I have recently opened fixed annuity for $500 with an Annuity Insurance Company. The money to open the Annuity Account was taken from the ROTH IRA. I know there will be two transactions, one recording the transfer transaction to deposit to the Annuity for $500 and the other transaction for taking the money from ROTH IRA for ($500). At this time, Quicken Simplifi support is trouble shooting the reason why when the creation of the annuity account is attempted, the creation action received an error. So, in the meantime, what is the manual account type for the Annuity Account?

SRC54 · Accepted Answer

Well, if you need to create an account for an annuity, I don't think it matters too much which Investment type you choose.  Maybe Other Investment.

However, to me an annuity is created when you move money to it and in return for giving this money to the company, they guarantee a monthly income to you for life.  Now in your case there may be a death benefit if you die within a certain time frame and you would have a beneficiary who would receive that.

I would just create a monthly reminder for the $500 and categorize it as Annuity Income (create an income category with that name if you don't already have one) and each month as you receive the deposit, Simplifi will record it that way.  That would be the simple way and how I do our retirement income that was annuitized when my wife retired.

But it all depends on what you want and what the situation is with this particular annuity.

If it is an account that gets depleted slowly as you draw from it, then it would be a distribution (still an income category) that you take monthly, but since you took this money from the Roth IRA to buy an annuity, it doesn't seem to me that this is the case.

Also since this money from a Roth IRA, the money wasn't taxable but now that you have put it into an annuity that will provide this money for life, that's another can of worms.  I hope and expect that it is non-taxable or at least mostly non-taxable.

So let us know more particulars.

DryHeat · Accepted Answer

@Dick_Davis

Just to expand a bit on what @SRC54 said… it depends a lot on what kind of annuity you have.

The insurance company annuities I have seen aren't actually accounts. Rather, they are contracts where you give the insurance company your money and they agree to pay you a fixed or variable amount for a fixed number of years (or life). If that is the case, then there is no account that you are drawing on. The insurance company is just paying you a monthly stipend.

I don't give tax advice, but you should look into taxation of annuities. Usually only a portion of a purchased annuity — the gain — is taxable. Try googling "is a purchased annuity taxable income in the usa?" for relevant articles.