The formula to calculate the Annuity Exclusion Ratio is:
\[ \text{AER} = \frac{\text{LS}}{\text{MB} \times \text{LE}} \]
Where:
The annuity exclusion ratio is a measure used to determine the portion of an annuity payment that is excluded from taxable income. It is calculated by dividing the lump-sum premium by the product of the monthly benefit and the life-expectancy period. This ratio helps in understanding how much of the annuity payment is considered a return of the original investment and thus not subject to taxes.
Let's consider an example:
Using the formula to calculate the Annuity Exclusion Ratio:
\[ \text{AER} = \frac{100000}{500 \times 240} = \frac{100000}{120000} \approx 0.83 \]
This means that the annuity exclusion ratio for this scenario is approximately 0.83.
