Juanita paid a life insurer 45,000 in exchange for an immediate life annuity. Juanita will receive 500 per month from the insurer, and her life expectancy is 15 years (180 months).
Assume that Juanita receives 12 monthly payments of 500 the first year. How much taxable income must she report?
A) 3,000
B) 4,000
C) 4,500
D) 6,000
Question 2
Which of the following statements is (are) true regarding the taxation of distributions from individual annuities?
I. Individual annuity distributions are never taxable.
II. Once the annuitant has recovered the premiums he or she paid for the annuity, the entire annuity distribution is taxable.
A) I only
B) II only
C) both I and II
D) neither I nor II
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