Moving From One Annuity to Another: Tax-Free “1035” Exchanges

You can transfer funds from one annuity contract to another using using a "1035 exchange". Section 1035 of the U.S. tax code allows you to exchange annuity contracts without paying any tax on the income and investment gains in your current variable annuity account. These tax-free 1035 exchanges can be useful if another annuity has features that you prefer, such as a larger death benefit, different annuity payout options, or a wider selection of investment choices.

A few basic rules apply to qualify for a tax-free 1035 exchange, including:

• The existing annuity contract issued by one insurer must be assigned, prior to maturity of the contract, to the insurer providing the new contract.
  
  
• Both contracts must be payable to the same person or persons
  
  
• The cost basis of the new annuity (the initial value of the investment, above which any earnings are considered a taxable gain at the time of withdrawal) will generally be the same as the cost basis of the old annuity.
  

You may be required to pay surrender charges on the old annuity if you are still in the surrender charge period. And a new surrender charge period begins when you exchange into the new annuity.

Compare both fixed annuity and variable annuity carefully. Consult your financial professional or tax adviser to ensure the exchange will be tax free and what fees may be incurred.

If you have any questions regarding the transfer of annuities, please feel free to consult with us for free at 1-800-879-9630.