retirement vehicle permitted under section 403 (b) plan of the U.S. Internal Revenue Code for employees of a public school system or a qualified charitable organization. Under such an agreement, the maximum annual contribution is $4500. Cash values and dividends accrue but are not taxed until the annuitant actually receives benefits. At that time, the annuitant is taxed only on the amount that exceeds the investment in the annuity. Should the annuitant receive a monthly benefit under one of the various annuities, the percentage of each payment that would not be subject to taxation is determined by the exclusion ratio:
For example, if an annuitant invested $40,000 in an annuity, and at age 60 has a 14-year life expectancy, and receives an annual income of $5000, then 57.14% of each income payment would not be subject to taxation.
