Annuity Planning · Tool 10 of 12
Annuity Tax Characterization
Year-by-year breakdown of exclusion ratio (NQ annuitized), LIFO basis recovery (NQ non-annuitized), 100% taxable (qualified), or fully excluded (Roth). with the transition year highlighted.
Cumulative summary
Cumulative taxable
$100,000
Cumulative excluded
$50,000
Transition year
Beyond horizon
LIFO: gain comes out first (100% taxable), basis last. §72(q) 10% penalty applies under 59½.
Cumulative taxable vs excluded
1815
Cumulative excluded (tax-free)
Cumulative taxable
The two lines split every payment into excluded (basis recovery, tax-free) and taxable (ordinary income). For NQ annuitized contracts the split is fixed until basis is recovered; for LIFO the gain comes out first and the excluded line stays flat at zero until basis is reached.
Year-by-year
| Year | Gross | Excluded | Taxable | Basis left | Penalty |
|---|---|---|---|---|---|
| 1 | $10,000 | $0 | $10,000 | $150,000 | 10% |
| 2 | $10,000 | $0 | $10,000 | $150,000 | 10% |
| 3 | $10,000 | $0 | $10,000 | $150,000 | |
| 4 | $10,000 | $0 | $10,000 | $150,000 | |
| 5 | $10,000 | $0 | $10,000 | $150,000 | |
| 6 | $10,000 | $0 | $10,000 | $150,000 | |
| 7 | $10,000 | $0 | $10,000 | $150,000 | |
| 8 | $10,000 | $0 | $10,000 | $150,000 | |
| 9 | $10,000 | $0 | $10,000 | $150,000 | |
| 10 | $10,000 | $0 | $10,000 | $150,000 | |
| 11 | $10,000 | $10,000 | $0 | $140,000 | |
| 12 | $10,000 | $10,000 | $0 | $130,000 | |
| 13 | $10,000 | $10,000 | $0 | $120,000 | |
| 14 | $10,000 | $10,000 | $0 | $110,000 | |
| 15 | $10,000 | $10,000 | $0 | $100,000 |