Asked by: Sumaira Irachet
asked in category: General Last Updated: 1st February, 2020

What is annuity exclusion ratio?

The exclusion ratio is simply the percentage of an investor's return that is not subject to taxes. The exclusion ratio is a percentage with a dollar amount equal to the payback on an initial investment. Most of the time, the exclusion ratio applies to non-qualified annuities.

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Similarly, you may ask, what is the exclusion ratio for annuities?

Exclusion Ratio Factors The exclusion ratio is the percentage of the annuity payment classifed as non-taxable income. The amount of payment excluded is calculated by dividing the after-tax money used to buy the annuity by the life expectancy of the person receiving the annuity payments.

Furthermore, what portion of a non qualified annuity is taxable? Also, if you are under age 59 1/2 when you make the withdrawal, you may be assessed a 10% penalty on any taxable earnings. Annuitized Payments – If you annuitize a nonqualified annuity, a portion of your payment will be considered a return of premium and will not be subject to ordinary income tax.

Beside this, how do you calculate the exclusion ratio of an annuity?

You can calculate the exclusion ratio by dividing the initial investment over the payment period. This amount is removed from the taxable income of segment, with anything over that amount taxed as usual. Say, for example, you purchased a variable annuity for $100 with a payment period of 20 months.

How much of an annuity payment is taxable?

You have an annuity purchased for $40,000 with after-tax money. Annual payments of $4,000 – 10 percent of your original investment – is non-taxable. You live longer than 10 years. The money you receive beyond that 10-year-life expectation will be taxed as income.

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