When an annuitant receives liquidation payments, part of the payment is a return of principal and is thus exempt from Federal Income tax. The tax-exempt portion of the payment is calculated using the:
A) exclusion ratio
B) refund ratio
C) vested ratio
D) combined ratio

Question

Quizplus · Accepted Answer

The exclusion ratio is used to determine the portion of an annuity payment that is considered a return of principal and thus exempt from Federal Income tax. It is calculated based on the original investment amount, the expected return, and the annuitant's life expectancy.

When an Annuitant Receives Liquidation Payments, Part of the Payment