Multiplying the annuity amount received by the ratio of the investment in the annuity to the expected return determines the annuity's taxable portion.

Question

Quizplus · Accepted Answer

The taxable portion of an annuity is determined by using the exclusion ratio, which divides the investment in the contract by the expected return, not by multiplying the annuity amount received by this ratio. The exclusion ratio is then applied to each annuity payment to determine the portion that is not taxable.

Multiplying the Annuity Amount Received by the Ratio of the Investment