467. How is the tax-exempt portion of payments determined for a joint and survivor annuity where the size of the payments will be reduced only if a specified annuitant dies first?Stevenrcline202015-04-28T18:06:00Z2015-04-28T18:06:00Z25773292Summit Business Media277386214Site Map/Annuities/Nonqualified/Amounts Received as an Annuity/Fixed Annuities/Life Annuity/Joint and Survivor2005-01-24T00:00:00ZTaxFactsDefaultArticle10016-00-TF1.xml16.00;#1582;#0x010100C568DB52D9D0A14D9B2FDCC96666E9F2007948130EC3DB064584E219954237AF3900242457EFB8B24247815D688C526CD44D009C4E67E972694125ABDA91AC61F5E51FTax Facts 1How is the tax exempt portion of payments determined for a joint and survivor annuity where the size of the payments will be reduced only if a specified annuitant dies first?127190800.0000000000TaxFactsDefaultArticleSBMEDIA\moss-admin2010-01-19T08:07:40Z467. How is the tax-exempt portion of payments determined for a joint and survivor annuity where the size of the payments will be reduced only if a specified annuitant dies first?In this variation of the joint and survivor annuity, payments of a stipulated amount are made for so long as a specified annuitant (for example, the husband) lives, but payments of a reduced amount are made to the surviving joint annuitant (for example, the wife) for as long as the survivor lives. If the non-specified annuitant (for example, the wife) dies first, payments to the specified annuitant (for example, the husband) remain the same. The exclusion ratio for such an annuity is determined in the usual way, by dividing the investment in the contract by the expected return under the contract (Q 450). Expected return, however, must be computed in the following manner:.Treas. Reg. §1.72-5(b)(2).(1)Find the joint and survivor multiple in Table II or VI (whichever is applicable, depending on when the investment in the contract was made, as explained in Appendix A) under the ages and (if applicable) the sexes of the annuitants. Then find the single life expectancy multiple in Table I or V, whichever is applicable, under the age and (if applicable) the sex of the first (specified) annuitant. (See Appendix A for Annuity Tables.) Subtract the applicable Table I or Table V multiple from the applicable Table II or Table VI multiple, and multiply the amount payable annually to the second annuitant (the reduced payment) by the difference between the multiples.(2)Multiply the amount payable annually to the first annuitant by the Table I or Table V multiple (whichever is applicable).(3)Add the results of (1) and (2). This is the expected return under the contract.Then proceed in the usual manner: divide the investment in the contract (Q 456) by the expected return under the contract (as computed above).Example. After June 30, 1986, a husband and wife purchase a joint and survivor annuity providing payments of $100 a month for his life and, after his death, payments to her of $50 a month for the remainder of her life. As of the annuity starting date he is seventy years old and she is sixty-seven.Multiple from Table VI (ages 70, 67)22Multiple from Table V (age 70)16Difference (multiple applicable to second annuitant)6Portion of expected return, second annuitant (6 x $600)$ 3,600Portion of expected return, first annuitant (16 x $1,200)19,200Expected return under the contract$22,800Assuming that the investment in the contract is $14,310, the exclusion ratio is 62.8 percent ($14,310 ÷ $22,800). While the husband lives, $62.80 of each monthly payment (62.8 percent of $100) is excluded from gross income, and the remaining $37.20 of each payment must be included in gross income. After the husband’s death, the surviving wife will exclude $31.40 of each payment (62.8 percent of $50), and the remaining $18.60 of each payment will be includable in her gross income. If the annuity starting date is after December 31, 1986, the total amount excludable is limited to the investment in the contract. Thus, if the husband lives fifteen years and receives 180 payments, the unrecovered investment in the contract at his death is $3,006 ($14,310 - (180 × $62.80)). The surviving wife can exclude $31.40 for ninety-five payments, and $23 from the next one payment ($3,006 - (95 × 31.40) = $23). She may exclude nothing thereafter.