Estimate the initial excluded and taxable portions of fixed annuity payments under the General Rule. Use adjusted investment in the contract and either IRS Table V with payment timing or a verified expected-return multiple. The calculator does not determine which tax method applies.

Estimate the initial exclusion for a fixed single-life annuity using IRS Table V. Use an already adjusted investment in the contract. This does not determine whether the General Rule applies to your contract.

After-tax investment after applicable adjustments, including any refund feature. This may differ from total premiums paid.

Select the actual payment period. Changing this selector keeps the dollar amount and changes the payment schedule; it does not convert the amount.

Whole years, 40–95. Uses IRS Publication 939 Table V, ordinary single-life annuities.

Monthly: 0–1; quarterly: 0–3; annually: 0–12. Required to apply the IRS payment-timing adjustment.

Annuity Exclusion Ratio Formula

The following formula is used to calculate the Annuity Exclusion Ratio. 

AER = LS / (MB × LE)
  • Where AER is the Annuity Exclusion Ratio
  • LS is the adjusted investment in the contract ($), which may differ from total premium paid
  • MB is the monthly benefit ($) 
  • LE is the applicable expected-return multiple expressed in months

Divide adjusted investment by expected return, then round the decimal ratio to three places under IRS Publication 939. Multiply by the initial regular payment to find its excluded amount. The calculator takes multiples in years; divide a multiple stated in months by 12. For annuities starting after 1986, cumulative exclusions cannot exceed net cost.

How to Calculate Annuity Exclusion Ratio?

The following example problems outline how to calculate Annuity Exclusion Ratio.

Example Problem #1

  1. First, determine the adjusted investment in the contract ($).
    • The adjusted investment in the contract ($) is 100,000.
  2. Next, determine the monthly benefit ($).
    • The monthly benefit ($) is measured to be: 560.
  3. Next, determine the applicable expected-return multiple (months).
    • The verified expected-return multiple is assumed to be 200 months (200 / 12 years).
  4. Finally, calculate the Annuity Exclusion Ratio using the formula above: 

AER = LS / (MB * LE) * 100

The values given above are inserted into the equation below and the solution is calculated:

AER = 100000 / (560 × 200) ≈ 0.893, or 89.3%, after rounding the decimal ratio to three places. This assumes the $100,000 is adjusted investment and the 200-month multiple is applicable.

Example Problem #2

The variables required for this problem are provided below:

adjusted investment in the contract ($) = 200,000

monthly benefit ($) = 700

expected-return multiple (months) = 200

These second-example inputs produce a ratio above 100%: $200,000 / ($700 × 200) ≈ 1.429. Check the investment and expected-return assumptions; this calculator flags the inconsistency rather than silently capping the ratio.

The entered investment exceeds expected return; the assumptions require review.