Question

1. Taxpayer (“T”) a 59 year-old calendar year individual taxpayer purchased an annuity from an insurance company for $100,000 in 2019. The terms of the annuity were that the company would pay T $5,000 a year to T for the rest of T’s life. How much income will T include in T’s personal income tax return as a result of receiving the $5,000 payment

in 2020?   _____________

In 2050? ______________

Answer 1

The annuities are classified into two groups. Qualified annuity and non qualified annuity. Qualified annuity are those annuities that purchased out of money for which no taxes have been paid. Amount received from these annuities are fully taxable. Non qualified annuity are those which acquired out of the taxed money. Since tax is already paid for this money, amount received from these annuities are exemted from tax subject to conditions. If the annuity is purchased before 59.5 years and amount received is upto 10%of the annuity value, then amount received up to acturial life expectancy of the annuitant is not liable for taxation.

Hence income to be included as a result of annuity in 2020 is ZERO dollars as it satisfies the conditions.

Income to be included as a result of annuity in 2050 is 5000 dollars as the acturial life expectancy has expired.