Let's start with Basis. In the case of an annuity, it is the amount of money you paid into the annuity to fund it. You've already paid taxes on that money, and you do not owe taxes on it again.
In general, all annuities are Taxable Annuities, But annuities purchased with a Roth IRA or Roth 401(k) are completely tax-free if certain requirements are met.
How to Figure the Taxable Amount of Annuities
- Determine your cost basis. (The amount you paid in.)
- Divide your cost basis by the accumulation value. (Total value of the Annuity)
- Multiply the size of your monthly payout by this percentage. (This is the non-taxable portion)
- Subtract the non-taxable portion from the total monthly payout to determine the taxable portion.
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