Fifteen years ago, Mr. Fairhold paid $50,000 for a single-premium annuity contract. This year, he began receiving a $1,300 month

Question

2 months ago

11

Fifteen years ago, Mr. Fairhold paid $50,000 for a single-premium annuity contract. This year, he began receiving a $1,300 month

ly payment that will continue for his life. On the basis of his age, he can expect to receive $312,000. How much of each monthly payment is taxable income to Mr. Fairhold

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1 answer:

Mariulka [3.8K] · Answer 1 · 2026-04-09T04:49:13+03:00

Response: $1091.61

Clarification:

Based on the inquiry, fifteen years ago, Mr. Fairhold invested $50,000 in a single-premium annuity contract, and this year, he began to receive a monthly payment of $1,300 that will last throughout his lifetime, with an expected total of $312,000. The taxable amount of each monthly payment for Mr. Fairhold is calculated as follows:

In accordance with the inquiry, Mr. Fairhold will recoup his $50,000 tax-free. The exclusion ratio is formulated by dividing the investment by the anticipated return. This yields:

= $50,000/$312,000

= 0.1603

Given that he receives a monthly payment of $1,300 and the exclusion ratio stands at 0.1603, the tax-free return on investment would then amount to:

= $1,300 × 0.1603

= $208.39

Taxable portion of the annuity payment will therefore be:

= $1300 - $208.39

= $1091.61