Addison pays $15,000 for an annuity that will pay $1,000 a year, starting this year. If...

Addison pays $15,000 for an annuity that will pay $1,000 a year, starting this year. If the annuity is for a term of 20 years, how much taxable income will Addison have from the annuity each year?

Group of answer choices

c. Addison will have $750 of taxable income from the annuity each year.

d. Addison will have $1,000 of taxable income from the annuity each year.

a. Addison will never have taxable income resulting from annuity distributions.

b. Addison will have $250 of taxable income from the annuity each year.

Solutions

Expert Solution

Amount Invested	15,000

Total Recovery	20,000	=1000*20

Investment recovery % out of total recovery	75%	(15,000 / 20,000 )

Taxable Portion of annuity	25%	(1-75%)

Taxable income from the annuity each year	$ 250	=1000*25%

Correct answer is option b. ( i.e Addison will have $250 of taxable income from the annuity each year.)

ekkarill92 answered 2 years ago

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