juanita paid a life insurer $45,000 in exchange for an immediate life annuity. juanita will receive $500 per month from the insurer, and her life expectancy is 15 years (180 months). assume that juanita receives 12 monthly payments of $500 the first year. how much taxable income must she report?

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27-10-2022
Business

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juanita paid a life insurer $45,000 in exchange for an immediate life annuity. juanita will receive $500 per month from the insurer, and her life expectancy is 15 years (180 months). assume that juanita receives 12 monthly payments of $500 the first year. how much taxable income must she report?

Answer :

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KhiradAfaq KhiradAfaq · Answer 1 · 2022-11-01T05:31:43-04:00

Juanita purchased an immediate life annuity from a life insurance company for $45,000. The insurer will pay Juanita $500 per month, and she has a 15-year life expectancy (180 months). The exclusion ratio is a percentage with a value equal to the initial investment's return in dollars.

Taxes, such as the capital gains tax, are applied to any return that exceeds the exclusion ratio. The exclusion ratio often applies to non-qualified annuities. Particulars of the Exclusion Ratio Calculation Explanation

Investment into the contract was $45,000, and the anticipated return was (180 months * $500/month).

$90000

[A/B] Exclusion Ratio

$45000 / $90000 50%

In general, you won't pay taxes on annuity growth until you receive distributions, such as regular annuity payments or withdrawals. Annuities grow tax-deferred. However, while considering how to tax you on the annuity, the IRS takes into account how you finance it.

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