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Taxpayer (“T”) a 59 year-old calendar year individual taxpayer purchased an annuity from an insurance company...

  1. Taxpayer (“T”) a 59 year-old calendar year individual taxpayer purchased an annuity from an insurance company for $100,000 in 2019. The terms of the annuity were that the company would pay T $5,000 a year to T for the rest of T’s life. How much income will T include in T’s personal income tax return as a result of receiving the $5,000 payment

in 2020?   _____________

In 2050? ______________

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Expert Solution

Annuity payments   Qualified Annuity   Non - Qualified annuity  
Taxation Taxed entire annuity income in the year of receipt
Assumed annuity of $ 100000 bought using money from 401(k)		 if annuity purchased after tax funds, then it qualifies as Non- Qualified annuity. Taxation on such annuity is determined on the basis of exlcusion ratio.
2020                                                          -   4750
$ 5000-($5000*5%)
2050                                               100,000                                              100,000
Money received beyond 30 years is taxable
Life expectancy                                                         30
Expected age Year 59+ 30 Years
Expected age 89
% in excess- taxed $5000/$100000
% in excess- taxed 5%

ekkarill92 answered 9 months ago
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