3. shirley bought a nonqualified immediate straight life annuity for $100,000 and received $14,000 annually…

3. shirley bought a nonqualified immediate straight life annuity for $100,000 and received $14,000 annually, only $4,000 of which was includible in her income under the exclusion ratio. which of the following would occur at the end of ten years? (search chapter 16)\n\na. periodic payments would end.\n\nb. all further periodic payments would be fully taxable.\n\nc. the taxable portion of her periodic payments would receive capital gains tax treatment.\n\nd. periodic payments would increase to account for a change in tax treatment.\n\n4. with regard to the taxation of annuitized income, which of the following statements is true? (search chapter 16)\n\na. annuitized income is taxed at capital gains rates.\n\nb. annuitized income is taxed at ordinary income tax rates.\n\nc. annuitized income is taxable until all invested premiums have been paid out, at which point it becomes tax free.\n\nd. annuitized income is not subject to taxation.

3. shirley bought a nonqualified immediate straight life annuity for $100,000 and received $14,000 annually, only $4,000 of which was includible in her income under the exclusion ratio. which of the following would occur at the end of ten years? (search chapter 16)\n\na. periodic payments would end.\n\nb. all further periodic payments would be fully taxable.\n\nc. the taxable portion of her periodic payments would receive capital gains tax treatment.\n\nd. periodic payments would increase to account for a change in tax treatment.\n\n4. with regard to the taxation of annuitized income, which of the following statements is true? (search chapter 16)\n\na. annuitized income is taxed at capital gains rates.\n\nb. annuitized income is taxed at ordinary income tax rates.\n\nc. annuitized income is taxable until all invested premiums have been paid out, at which point it becomes tax free.\n\nd. annuitized income is not subject to taxation.

Answer

Brief Explanations:

For question 3, Shirley's initial investment of $100,000 is being recovered over time. After 10 years of receiving $14,000 annually with $4,000 taxable, the investment - related portion has likely been recovered, and all further payments are fully taxable. For question 4, annuitized income is taxed at ordinary income tax rates.

Answer:

  1. B. All further periodic payments would be fully taxable.
  2. B. Annuitized income is taxed at ordinary income tax rates.