A 1035 annuity exchange is a rule under Section 1035 of the Internal Revenue Code that allows for a tax-free exchange of a life insurance or annuity policy for a different annuity contract that is better suited to an investor’s needs.

What is a tax free 1035 exchange?

A 1035 exchange is a provision in the Internal Revenue Service (IRS) code allowing for a tax-free transfer of an existing annuity contract, life insurance policy, long-term care product, or endowment for another one of like kind.

Can I rollover a tax-deferred annuity?

Yes, you can roll over or exchange a fixed annuity for a new annuity. By doing a 1035 exchange, you won’t have to claim the annuity earnings as income immediately, and you avoid paying taxes at that time (note: annuities are tax-deferred investments, so you will still have to pay taxes upon withdrawal at a later date).

How to exchange a non qualified annuity for a new one?

You can exchange your old non-qualified annuity for a new one with the assistance of a licensed insurance agent and by using the proper paperwork. It is important to note there are procedures that must be done properly – otherwise the transaction can result in a taxable event. We help our clients avoid such issues.

Are there any tax free long term care annuities?

These income tax-free withdrawals will allow you to protect your retirement by guaranteeing you that you have funds available for long term care expenses.

Can a 1035 exchange be used to cash out an annuity?

If you try to cash out your annuity and use the money to purchase another annuity, the law won’t cover that exchange, and you will not be spared the tax consequences. In 2013, the IRS ruled that people who inherit annuities may also qualify for a 1035 exchange, as long as they follow all the other rules for inherited annuities.

Can you exchange an out of date annuity for a better one?

The IRS allows you to exchange an out-of-date non-qualified contract for a more recent contract that may be more suitable. Under a 1035 exchange, you can replace that old annuity for a better one, without having to pay taxes on any gain in the policy provided you follow the 1035 exchange rules.