7 Things To Remember When Doing A 1035 Annuity Exchange
January 8, 2020 by Matt Carey
The process of using funds from an existing annuity to purchase another annuity is commonly referred to as an annuity exchange. If the funds being used are non-qualified (i.e. not held in something like an IRA), then the exchange would be a 1035 exchange (so named for Section 1035 of the IRS Code, which governs such exchanges). If the funds being used are qualified, then the annuity exchange is governed by the rules governing the IRA or other qualified plan within which the annuity is held.
Exchanges involving life insurance are also classified as 1035s. A life insurance policy can be exchanged for an annuity under the rules of a 1035 exchange, but you cannot exchange an annuity contract for a life insurance policy. I’ll focus on an annuity-to-annuity exchange in this article.
A 1035 exchange is a way to exchange an existing annuity for another annuity that either achieves a different goal or provides a better rate, all while maintaining the tax-deferred status of your annuity. For non-qualified annuity owners who are unhappy with their current contract or are looking for something new, understanding the 1035 exchange process is the best place to start.