Tax Facts

535 / How is expected return on a variable annuity computed under the annuity rules?

Generally speaking, expected return is the total amount that the annuitant or annuitants can expect to receive over the annuitization period of the contract.

The expected return of a variable contract cannot be known in advance. Therefore, the calculation of the amount excludable from each year’s annuity payment does not employ the “exclusion ratio” used with fixed annuities. Instead, with a variable contract, the investment in the contract is divided over the period across which annuity payments will persist ( Q 550).

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