Calculator Published: 2026-10-03

Annuity Exclusion Ratio Calculator

Written by Hans Goldstein, independent licensed insurance producer · CA license 4273294 · NPN 20602398
Published October 3, 2026

Short answer: the exclusion ratio is the share of each nonqualified annuity payment that is a tax-free return of your premium. Exclusion ratio = investment in the contract ÷ expected return. For a life annuity, expected return is the annual payment times the IRS Table V multiple for your age (20.0 at 65, 16.0 at 70). For a period-certain annuity it is the annual payment times the number of years. Once your premium is fully recovered, later payments are fully taxable. Payments from an IRA annuity are generally fully taxable instead.

Exclusion ratio calculator

Premium paid (after-tax) ($)

Monthly payment ($)

Payout type

Age at start (life) or years (period)

Uses Treas. Reg. §1.72-9 Table V (one life, ages 50 to 90). The IRS applies a small adjustment for payment frequency and timing (§1.72-5), and joint-life or refund features change the math, so your insurer’s 1099-R figure can differ slightly. The default payment is an illustration, not a quote. Not tax advice.

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How the exclusion ratio works

Under IRC §72(b), each payment from a nonqualified annuity is split into a return of what you paid (not taxed) and earnings (taxed as ordinary income). The split is fixed when payments start:

Investment in the contract: the after-tax premium you paid, less any tax-free amounts already received.
Expected return: for a life annuity, annual payments times the Table V multiple for your age; for a fixed period, annual payments times the years.
Ratio: investment divided by expected return. That percentage of every payment is tax-free.

For annuities starting after 1986, the exclusion stops once you have recovered your full investment. If you die before recovering it, the unrecovered amount is deductible on your final return. IRS walk-through: Publication 939.

Table V multiples (one life)

Age at annuity start	Expected return multiple (years)
55	28.6
60	24.2
62	22.5
65	20.0
67	18.4
70	16.0
72	14.6
75	12.5
80	9.5
85	6.9
90	5.0

Source: Treas. Reg. §1.72-9, Table V. The calculator uses every age from 50 to 90.

Why this matters when comparing income options

A nonqualified immediate annuity can deliver more after-tax income than the same dollar amount of taxable bond or CD interest, because much of each payment is your own money coming back. A $250,000 premium at 65 paying $1,550 a month is about 67% tax-free in the example above. Compare payout quotes in best SPIA rates and the immediate annuity calculator. The broader picture is in annuities and taxes explained.

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Hans Goldstein · 213-414-2808 · NPN 20602398, independent licensed insurance producer appointed with multiple carriers

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Frequently Asked Questions

What is the exclusion ratio on an annuity?

It is the percentage of each nonqualified annuity payment that is a tax-free return of your premium. It equals your investment in the contract divided by the expected return, fixed when payments begin.

How do I calculate the expected return for a life annuity?

Multiply the annual payment by the IRS Table V multiple for your age at the annuity starting date, from Treasury Regulation 1.72-9. For example, the multiple is 20.0 at age 65 and 16.0 at age 70.

What happens when I outlive the exclusion ratio?

For annuities that started after 1986, once you have recovered your full investment tax-free, every later payment is fully taxable as ordinary income.

Does the exclusion ratio apply to IRA annuities?

Generally no. An annuity inside a traditional IRA or 401(k) was funded with pre-tax money, so payments are usually fully taxable unless you have after-tax basis in the account.

Sources

Goldstein & Co. LLC dba Goldstein Insurance Services, CA lic. #4273294 · Hans Goldstein, NPN 20602398 · 213-414-2808 · hans@hansgoldstein.com

This page is general education. It is not tax, legal or investment advice and is not an offer or recommendation for any specific product. Calculator results are estimates from the stated assumptions, not quotes. Guarantees in a fixed annuity are contractual and are backed by the financial strength and claims-paying ability of the issuing insurance company. Annuities are not FDIC insured. Annuities have surrender charges and other limitations; read the contract and disclosure before you buy. Consult a tax professional or attorney about your situation.