Question

Mr. Kitten purchased an annuity contract for $50,000 from the XYZ Company on March 31, 2022. He is to receive $1,000 per month starting April 1, 2022, and continuing for life. He has a life expectancy of 10 years as of March 31, 2022. Mr. Kitten's reportable annuity income for 2022 is:

Answer 1

Mr. Kitten's reportable annuity income for 2022 is:$5,250.

Annuity income

First step

Expected return= 120 months × $1,000

Expected return=$120,000

Second step

Exclusion ratio=($50,000/$120,000)

Exclusion ratio=41.67%

Third step

(April 1-December 31= 9 months)

Annuity income=(9 months×$1,000) -[(9 months×$1,000)×41.67% ]

Annuity income=$9,000-($9,000×41.67%)

Annuity income=$9,000$3,750

Annuity income=$5,250

Therefore Mr. Kitten's reportable annuity income for 2022 is:$5,250.

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