Betty purchased an annuity for $24,000 in 2019.Under the contract, she will receive $300 each month for the rest of her life.According to the actuarial estimates, Betty will live to receive 96 payments and will receive a 3% return on her original investment.

Question

Quizplus · Accepted Answer

DExplanation:C) This statement is correct because, according to tax rules, once an annuitant has recovered their investment in the annuity (in this case, after 96 payments based on the actuarial estimates), any payments received thereafter are considered fully taxable as they are now exceeding the cost basis of the annuity.D) This statement is also correct. If Betty were to die after receiving only 60 payments, she would not have fully recovered her initial investment of $24,000. The difference between what was paid for the annuity and what was received from it ($24,000 - $18,000 = $6,000) could be considered a loss. In tax terms, how this loss is treated can depend on specific circumstances and tax laws, but the calculation presented is conceptually accurate.

Betty Purchased an Annuity for $24,000 in 2019