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URL:  http://boards.fool.com/id-like-confirmation-that-when-an-annuity-is-30274807.aspx

Subject:  Re: Term Certain Annuitization - Inherited Annui Date:  9/21/2012  12:25 AM
Author:  ptheland Number:  116647 of 121219

I'd like confirmation that when an annuity is annuitized, by the owner or a beneficiary, is not subject to LIFO rules; that each payment is equally part capital and part earnings in the same ratio as the investment, and that the earnings portion is taxable as ordinary income.

I've never fully understood how the insurance company determines what part of an annuity payment is taxable and what is return of the investment. All I do know is that that is the case. Every payment is split.

There are some situations when the principal is recovered fast enough (three years, I think) and some other requirement are met (which I don't recall), then you just recover your principal first and then every payment after that is taxable income. But I've only read about it, I've never actually run into it in practice.

--Peter
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