Annuity

Annuity means:
a contract or agreement sold by commercial insurance companies that pays a monthly (or quarterly, semiannual, or annual) income benefit for the life of a person (the annuitant), for the lives of two or more persons, or for another specified period of time. No income is recognized as the cash value of the annuity increases. When payments are finally received, the amount is apportioned between the recovery of capital and income based on the following exclusion formula: investment cost /expected return x annuity payment = exclusion amount The difference between the annuity payment and the exclusion amount is taxable income. Once the investment in the contract is recovered, all other payments are taxable. Former IRC (check if this IRC provision is current here) §§ 72 and 1035(b)(2).

Description and Definition of Annuity

An annuity is an annual payment of money by a company or individual to a person called the annuitant. The payment is for a fixed period or the life of the annuitant. The payments you receive include the return of your investment in the contract plus interest or other return on your invested capital.

Resources

See Also

Further Reading

• Annuity in the West's Tax Law Dictionary
• Annuity in “A Dictionary of Taxation”