Exclusion Ratio

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Exclusion Ratio

The percentage of an investor's return that is not subject to taxes. The exclusion ratio is a percentage with a dollar amount equal to the payback on one's initial investment. Any return above the exclusion ratio is subject to taxes. Most of the time, the exclusion ratio applies to non-qualified annuities.
References in periodicals archive ?
Other companies do it a different way, letting investors into their annuity with no benefits during accumulation, and then adding riders later, which also use SPIA-like exclusion ratios.
At some point, of course, the taxman must be paid; when the exclusion ratio has captured all of the cost basis, it ends and all remaining income is taxed.
On top of that, the $375,000 donation will yield $519,000 of income to the donor over their lifetime, and because of exclusion ratios contained in nonqualified annuities, the income tax due on the annuity income will be reduced further until the cost basis of $375,000 has been paid out.