Question

julian, who is now 75 years old, accumulated $60,000 at age 60. he used his savings to purchase a single premium annuity, which pays him $500 per month. if his life expectancy was 25 years at the time he purchased the annuity, how much of each payment is subject to tax?

Answer 1

The each payment is subject to tax $300

Briefing:-

$150,000 in total payments ($500 per month for 300 months)

Exclusion ratio equals $60,000 for the annuity's purchase price / $150,000 for all installments, or 40%.

Each payment's taxable component is calculated as follows: $500 X (1-.40 exclusion ratio) = $300

Which of the following is regarded as the time when an annuity's cumulative value is distributed?

The accumulation phase, also known as the accumulation period, and the payout phase are the two periods of annuities. Your premiums accrue interest during the accumulation period and increase.

How is the taxable portion of each annuity payment calculated?

The exclusion ratio refers to the process used to calculate the taxable share of each payment. Each payment is subject to an exclusion ratio, which specifies that a portion of each payment shall be deemed a return of the owner's cost basis and shall not be subject to tax.  But the remaining amount is taxed.

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