How to transfer to a different annuity using a 1035 exchange

How to transfer to a different annuity using a 1035 exchange

There can be any number of reasons why an annuity that you own is no longer the proper financial solution for you. But canceling, or surrendering, it outright could cost you. That is unless you swap it for another annuity using a 1035 exchange.

If you purchased an annuity. even just a few years ago, it’s possible that your income needs have changed, or there could be other annuity products available now that offer additional benefits as compared to your current plan.

But, rather than outright canceling your current annuity and starting all over again with the purchase of a new one, you may want to instead consider a 1035 exchange.

What is a 1035 Exchange and How Does It Work?

A 1035 exchange refers to the replacement of an annuity or a life insurance policy for a new one, without incurring any tax consequences for the exchange. In the case of a 1035 exchange, the IRS (Internal Revenue Service) allows consumers to replace “outdated” contracts with new ones that provide lower fees, better benefits, and/or different options that may more closely fit an individual’s current (and future) needs.

According to the IRS, the following types of exchanges are considered to be tax-free:

  • Replacement of one annuity for another (with identical income recipients/annuitants)
  • Replacement of one life insurance policy for another
  • Replacement of one life insurance policy for an annuity contract

When you conduct a 1035 exchange, there are no taxes due on the gain in the original contract – provided that the funds are directly transferred into the new plan, and that you do not take direct receipt of the money.

Going the route of a 1035 exchange can also allow you to keep your basis in the contract. This can be particularly beneficial if you have incurred a loss in the current policy. For instance, if you contributed $100,000 into your original annuity, but there is currently only $90,000 in the plan, your basis in the new contract would be $100,000. This, in turn, can be beneficial when determining how much you’ll be taxed on the future withdrawals.

Items to Consider Before You Move Forward with an Annuity 1035 Exchange

The actual 1035 exchange process is fairly easy. Once you have determined that your present annuity no longer fits your needs – and you’ve found another annuity that better fits your objectives – you need to contact your existing insurance company and inquire about the paperwork that is needed to move forward.

This will typically involve filling out and submitting an application for the new annuity, as well as completing a 1035 exchange request form. It is important to note that you should not cancel your current plan until you know that the new one will be issued to you.

Before you move forward with the replacement of an annuity, though, there are some important factors to consider, such as:

  • Your current (and future) financial goals
  • Surrender fees on your current annuity contract
  • Surrender fees on the new annuity contract you plan to purchase
  • Financial strength and stability of the insurance company

How to Determine the Right Annuity for Your Current – and Future – Financial Needs

If you have an annuity that just isn’t working out, it could be that another annuity alternative – either from the same or a different insurance carrier – will better fit your current and future financial objectives.

But going through the process of choosing a new annuity may be a bit overwhelming. As insurance carriers continue to issue new products into the marketplace, understanding all of the benefits and how they work may require you to wade through an ocean of small print.

That’s where we can help.

At Annuity Gator, we focus on providing consumers with the most in-depth annuity reviews so that the benefits – and the drawbacks – of annuities are better understood. We’ve researched and reviewed hundreds of annuities, which can be found in our annuity review database.

You can also reach out to us directly with any questions or concerns that you may have about annuities, 1035 exchanges, or other related topics. We can be reached by phone at (888) 440-2468. Or, you can send us an email via our secure online contact form to set up a time to chat with an annuity specialist.

Don’t let all of the confusing fine print keep you away from a financial product that could provide you with tax-advantaged growth, as well as an ongoing income that you can count on for the rest of your life. Contact Annuity Gator today.

How to transfer to a different annuity using a 1035 exchange

2 thoughts on “How to transfer to a different annuity using a 1035 exchange”

    1. Hi Kathy– Thank you for your message.
      We would be happy to assist you. In order to best support you, we would need some additional information from you. Rather than sending the info back and forth via email, it would be best to discuss by phone. Please feel free to contact us directly, toll-free, at (888) 440-2468 to chat with one of our annuity specialists or visit http://annuitygator.com/contact/
      We look forward to hearing from you.
      Best.
      Annuity Gator

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