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TAXES DECODEDTHE BASICS OF

ANNUITY TAXATION

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Here are the basics of what you need to know when making a decision

AS WITH ANY MAJOR FINANCIAL DECISION, THE TAX IMPLICATIONS ASSOCIATED WITH ANNUITIES CAN BE CONFUSING

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The basic distinction on how annuities are taxed depends on the MONEY GOING IN

INPUT$ Post Tax

$ Pre TaxINPUT

ANNUITY

ANNUITY

Part Taxed &Part Not Taxed

DISTRIBUTION

Subject to Income Tax

DISTRIBUTION

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ANNUITIES FUNDED WITH POST-TAX DOLLARS ARE CALLED

NON-QUALIFIED

DISTRIBUTIONPRINCIPAL (NOT TAXED)

GAIN (TAXED)

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THE TAXED PORTION OF YOUR DISTRIBUTION IS CALCULATED BY

THE EXCLUSION RATIO

RATIO

BUT WHAT DOES THIS MEAN?

TOTAL INVESTMENT IN THE CONTRACTEXPECTED RETURN

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YOUR TOTAL INVESTMENT IN THE CONTRACT IS

The premiums you’ve paid for the contract [1] less any payments you’ve received before payout

[1] As of starting date.

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THE EXPECTED RETURN IS

Monthly Payout

IRS expectancy for how long you receive those payments

X

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To determine the average life expectancy of someone the IRS uses ACTUARIAL TABLES, which are based on

1

2

3

AgeSexOverall health/longevity expectations

[1] This is not a comprehensive list of assumptions used to derive actuarial tables.

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NOW LET’S LOOK AT AN EXAMPLE

You’ve invested $100,000 in an annuity

It pays out $750 a month for life

Distributions begin at age 62

No early withdrawals and only one annuitant

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THE EXCLUSION RATIO

Your investment is $100,000, THE EXPECTED RETURN IS

YEARLY PAYOUT X$750 X 12

THEREFORE:

22.5 [1]EXPECTED YEARS OF PAYOUT

EXCLUSIONRATIO 49.4%

$100,000

$9,000 X 22.5

$100,000

$202,500

[1] Per IRS Longevity Tables.

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SO WHAT DOES YOUR EXCLUSION RATIO MEAN EXACTLY?

Of the $9,000 you receive each year

You only pay taxes on the $4,554 part of your distribution. Actual tax liability will depend on your individual tax bracket.

NON-TAXED PORTION $9,000 x 49.4%

$9,000 - $4,446

$4,446

$4,554TAXED PORTION

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THESE WERE JUST THE BASICS

SO WHAT SHOULD YOU DO?

Annuity taxation is incredibly complex.

The example we showed was meant to help you get a general understanding of tax concepts.

Talk to a tax expert before making any financial decisions.

Look out for more Abaris modules! We’ll keep releasing our easy to understand guides to navigate your decisions.

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DISCLAIMERThe information contained in this presentation, is provided for general informational purposes as a convenience to Abaris Financial Inc. customers and Internet users and is based upon information generally available to the public from sources believed to be reliable. Although we believe the information provided herein is reliable, we have not verified this information and we do not guarantee its accuracy, completeness, timeliness or availability. Any examples shown in this presentation are purely hypothetical and have been included for demonstrational purposes only. This information is subject to change without notice. This information is not a substitute for obtaining advice from a qualified professional. Therefore, you should not rely solely upon this information in making any decision. This information is not and does not constitute an offer to sell or a solicitation of an offer to buy any security, service or product.

Abaris Financial Inc., Philadelphia, PA is neither a registered broker-dealer nor a registered investment adviser. Nothing in this presentation, including links to other material, is intended as legal or tax advice. Abaris Financial Inc.’s Licensed Producers do not give legal or tax advice. Taxpayers should seek advice based on their particular circumstances from an independent tax advisor.