Annuity glossary

Exclusion Ratio

The IRS formula that splits each payment from an annuitized, non-qualified annuity into two parts: a return of basis that is not taxed of the money you originally paid in, and taxable earnings. It spreads your cost basis evenly across your expected payments, so only the growth portion of each check is taxed as ordinary income. Tax treatment depends on current law and the contract's facts, so individual guidance may be appropriate.

Any guarantee is backed by the claims-paying ability of the issuing insurer.