Because you have paid into the annuity over a period of years, a portion of your annuity payment is an amount you have paid into the plan. This is referred to as a cost basis in your annuity.
When the retirement plan is distributed, a portion of it is the cost basis you have paid in over the years, while the rest represents accumulated earnings. The basis recovered is non-taxable to you and this is the difference between your total distribution and the basis that was recovered for this year. This is the difference between your non-taxable and taxable portion of your annuity.
The benefit rate usually depends on your age, sex, and the annuity payment option. The cost basis is recovered over a period of years based on your life expectancy depending on age, sex, and the annuity payment option.