Question

Gramps purchased a joint survivor annuity that pays $1,300 monthly over his remaining life and that of his wife, Gram. Gramps is 70 years old and Gram is 65 years old. Gramps paid $270,270 for the contract. How much income will Gramps recognize on the first payment?

Answer 1

we wil use following table VI in Reg.1.72-9 to find Annual return multiplier

Year = 65/70

= 23.1

Ages	65	66	67	68	69	70	71	72	73	74
65	25.0	24.6	24.2	23.8	23.4	23.1	22.8	22.5	22.2	22.0
66	24.6	24.1	23.7	23.3	22.9	22.5	22.2	21.9	21.6	21.4
67	24.2	23.7	23.2	22.8	22.4	22.0	21.7	21.3	21.0	20.8
68	23.8	23.3	22.8	22.3	21.9	21.5	21.2	20.8	20.5	20.2
69	23.4	22.9	22.4	21.9	21.5	21.1	20.7	20.3	20.0	19.6
70	23.1	22.5	22.0	21.5	21.1	20.6	20.2	19.8	19.4	19.1

expected return = Annual payment*Annual return muliplier

=$1,300 monthly payment*12 months*23.1

=$1,300*12*23.1

=$360,360

Return on capital = $270,270/$360,360

=75% will be recorded as return on capital

25% will be recorded as an income

Thus, income recognized on first pyament = $1,300*25%

=$325

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