Ruth purchased an annuity contract for $10,000. When she turns 65, she will receive $150 a month for the rest of her life. The first $10,000 she receives is a return of her capital and is not taxable.

Question

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While the initial $10,000 payment from the annuity is not taxable as it is considered a return of capital, the monthly payments Ruth receives from the annuity will be subject to income tax.

Ruth Purchased an Annuity Contract for $10,000