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Transfer Annuities with a 1035 Exchange


If you purchased an annuity a long time ago and are looking for a different type of annuity product now, you can do a 1035 exchange to buy a new annuity.  In the Coshocton Tribune article, “Figuring out a 1035 exchange,” Scott Webb says that you can do exchanges for non-qualified accounts just like you can transfer from one IRA to another.  Annuities and life insurance policies can be transferred to a new policy using a 1035 exchange.  This will allow you to avoid the taxes you would be hit with if you withdrew your money from one of these investments.

There are two big reasons why 1035 exchanges are helpful.  By transferring your old annuity to a new annuity product, you will not have to pay taxes on any gains you may have made with your first annuity.  If the cash value of your annuity is greater than the amount you have paid in premiums, you would likely have to pay taxes on the difference if you simply cashed in your annuity.  Some people who bought annuities decades ago may have new financial goals that would work better with a new annuity, so the option to transfer is important.

Another helpful benefit to a 1035 exchange is the ability to maintain the adjusted basis of your first annuity.  This is particularly beneficial if you have a loss in your cash value.  You can transfer that to a new annuity product and hope to recoup that loss in the future.  An increase in annuity rates is one reason some investors want to transfer annuities; this could also help recoup a cash value loss.  While 1035 exchanges are helpful, they are complicated so it’s crucial to speak with an expert and have them help you with an annuity or life insurance transfer.

Written by Rachel Summit

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