Variable annuities offer the chance to take advantage of different investments within a tax-sheltered investment vehicle. They have an investment phase, when you make payments, and a payout phase, where you receive payments back. The basis of your variable annuity determines how much of your withdrawal counts as taxable income. The only way you have a basis in your variable is if you've put after-tax dollars in the account. Not keeping track of your basis could cost you extra on your taxes if you don't know how much of your distributions to exclude from your taxable income for the year.
Calculate the amount of after-tax dollars you contributed to the variable annuity. For example, if you put in $5,000 of after-tax dollars per year for five years, your total after-tax contributions are $25,000.
Add the amounts, if any, of all contributions your employer made that were included in your taxable income. For example, if your employer put in $1,000 per year on your behalf for five years, and that money was included in your taxable income, add that $5,000 to the $25,000 to find the basis from contributions is $30,000.
Subtract any tax-free payments you received from the annuity from the result to find your basis in the variable annuity. For example, if you've taken distributions from the variable annuity and $10,000 came out tax-free, your basis is $20,000.
Mark Kennan is a writer based in the Kansas City area, specializing in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."