Paolo is age 77.He paid $240,000 for a single life annuity contract that will pay him $43,200 per year for life.The tax-free amount of the first $43,200 payment is

A) $11,321.
B) $19,835.
C) $21,771.
D) $21,429.

Question

Stella Rossiter · Accepted Answer

Final Answer : D, Explanation :  The tax-free portion of an annuity payment is calculated using the exclusion ratio, which is the investment in the contract divided by the expected return. Paolo's expected return is $43,200 times his life expectancy (based on IRS tables). The exclusion ratio is $240,000 divided by the expected return. Multiply this ratio by the annual payment to find the tax-free portion.

Paolo is age 77.He paid $240,000 for a single life annuity contract that will pay him $43,200 per year for life.The tax-free amount of the first $43,200 payment is

A) $11,321.
B) $19,835.
C) $21,771.
D) $21,429.

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Learning Objectives

Related questions

Paolo is age 77.He paid $240,000 for a single life annuity contract that will pay him $43,200 per year for life.The tax-free amount of the first $43,200 payment isA) $11,321.B) $19,835.C) $21,771.D) $21,429.

Definitions

Learning Objectives

Learning Objectives

Related questions

Paolo is age 77.He paid $240,000 for a single life annuity contract that will pay him $43,200 per year for life.The tax-free amount of the first $43,200 payment is

A) $11,321.
B) $19,835.
C) $21,771.
D) $21,429.