Question

Larry purchased an annuity from an insurance company that promises to pay him $6,500 per month for the rest of his life. Larry paid $626,340 for the annuity. Larry is in good health and is 72 years old. Larry received the first annuity payment of $6,500 this month. Use the expected number of payments in Exhibit 5-1 for this problem (Use 14.6).

What are the tax consequences if Larry dies just after he receives the 100th payment?

Answer 1

12) Expected return multiple based on age group (oge = 14.60 No. of annual - 12 payments Expected value of payments = 14.60 x12x $ 6 500 $ 1138800 Exclusion percentage $626340 = 55% $ 1138800 Exclusion amount = $6500x55% = $3575 Amount to be deducted = $626340 - (100*$3595) = $626340 - $35 7500 = $ 268840 His Executor will be entitles to deduct the remaining amount $268840 on Larry's final fax return.