A 1035 exchange allows you to exchange one annuity for another (or a life insurance policy for an annuity) without paying taxes on the gain. The exchange must be done directly between insurance companies. A 1035 exchange is useful when you want to upgrade to a better annuity without triggering a taxable event.
Key Points
- 1035 exchange: exchange one annuity for another without paying taxes on the gain
- Exchange must be done directly between insurance companies
- Can exchange life insurance for annuity
- Cannot receive the funds — must be a direct transfer
- An independent agent can help you execute a 1035 exchange