Harold receives a life annuity from his qualified pension that pays him $5,000 per year for as long as he lives. Later this year Harold will recover the remainder of his cost of the annuity. Which of the following correctly describes how the annuity payments are taxed after Harold has recovered the cost of the annuity?
A) Harold will continue to apply the annuity exclusion ratio to determine the amount of each annuity payment includible in gross income.
B) Harold will include the entire amount of each annuity payment in gross income after he recovers the cost of the annuity.
C) The entire amount of each annuity payment is excluded from gross income after Harold recovers his cost of the annuity.
D) Harold must request that the IRS calculate his exclusion ratio based upon a revised life expectancy.
E) All of the choices are correct.
Correct Answer:
Verified
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