Amounts to which subdivision (ii) of this subparagraph applies shall include, for example, amounts considered to be return of premiums or other consideration paid under section 22(b)(2) of the Internal Revenue Code of 1939 and amounts considered to be an employer-provided death benefit under section 22(b)(1)(B) of such Code. For rules relating to the extent to which an employee or his beneficiary may include employer contributions in the aggregate amount of premiums or other consideration paid, see § 1.72-8 . If the aggregate amount of premiums or other consideration paid for the contract includes amounts for which deductions were allowed under section 404 as contributions on behalf of a self-employed individual, such amounts shall not be included in the investment in the contract.
Expectancy of A under Table I and § 1.72-5(a)(2) , 11.6 (12.1-0.5), multiplied by $1,000 | $11,600 |
Plus: Expectancy of B computed in a similar manner ($1,000 * 14.5 [15.0-0.5]) | 14,500 |
Total expected return | 26,100 |
The exclusion ratio for both A and B is then $19,575 ÷ $26,100, or 75 percent. A and B shall each exclude from gross income three-fourths ($750) of each $1,000 annual payment received and shall include the remaining one-fourth ($250) of each $1,000 annual payment received in gross income.
Expectancy of A under Table I and § 1.72-5(a)(2) , 11.6 (12.1-0.5), multiplied by $1,000 | $11,600 |
Plus: Expectancy of B under Table I and § 1.72-5(a)(2) , 14.5 (15.0-0.5), multiplied by $1,000 | $14,500 |
Pre-July 1986 expected return | $26,100 |
Expectancy of A under Table V and § 1.72-5(a)(2) , 15.5 (16.0-0.5), multiplied by $1,000 | $15,500 |
Plus: Expectancy of B under Table V and § 1.72-5(a)(2) , 15.5 (16.0-0.5), multiplied by $1,000 | $15,500 |
Post-June 1986 expected return | $31,000 |
Pre-July 1986 exclusion ratio ($10,000 ÷ $26,100) | 38.3 |
Post-June 1986 exclusion ratio ($9,575 ÷ 31,000) | 30.9 |
A and B shall each exclude from gross income $692 (38.3 percent of $1,000 + 30.9 percent of $1,000) of each $1,000 payment and include the remaining $308 in gross income |
For the purpose of determining, pursuant to (a) of this subdivision, the portion of the investment in the contract as a whole properly allocable to a particular annuity element, reference shall be made to the present value of such annuity element determined in accordance with paragraph (e)(1)(iii) (b) of § 1.101-2 .
An option to receive alternative forms of life annuity is not a disqualifying option for purposes of paragraph (d)(3)(i) of this section. Thus, if the sole options provided under a contract are a single life annuity and a joint and survivor life annuity, paragraph (d)(3)(i) (C) of this section does not apply to such contract.
See the example in § 1.72-4(d)(3)(v) .
For purposes of the separate computations required to determine the portion of the investment in the contract properly allocable to a particular annuity element, only the applicable portion of the present value of the annuity element determined in accordance with § 1.101-2(e)(1)(iii)(b) is taken into account.
26 C.F.R. §1.72-6