Evaluating Annuities: Exclusion Ratio and Money's Worth Calculation

This episode explains the difference between the IRS’s annuity exclusion ratio and the money’s worth calculation used in determining taxable portions of annuity payments. The annuity exclusion ratio determines how much of each annuity payment is considered a return of the taxpayer's investment (and thus excluded from taxable income) versus how much is taxable income. In contrast, the money's worth calculation considers the actual value of the annuity based on actuarial assumptions, often used for purposes like determining whether an annuity reflects fair value in estate planning transactions. The article highlights the potential differences in tax outcomes depending on which method is applied and emphasizes the importance of understanding both concepts for accurate tax reporting and planning. Read https://perma.cc/E9BR-SHH8