1035 Exchange Beneficial For Annuity Holders

What Can This Exchange Offer

The 1035 Exchange can allow you to exchange your existing plan with a new one, which offers more benefits in the following ways:

If you possess an annuity plan or an insurance policy, which was purchased few years back, you might wish to exchange it with a new plan offering better benefits. Now, your wish can be granted with the help of 1035 exchange. The name is borrowed from Section 1035 of the Internal Revenue Code. This allows you to exchange your existing insurance or annuity plan with new one, even if it is offered by a different company. The good news is that this exchange doesn’t lead to any unfavorable tax consequences.

• You can get a new plan with costs lower than the existing plans.
• The new plan can offer more death benefits than the existing plan owned by you.
• The new annuity or insurance plan can offer more favorable and wide variety of investment options than the plan already owned by you.

One thing must be considered that the exchange is applicable only if the owner of the plan remains same and also, the exchange between same types of contract is possible.

Partial 1035 Exchange

You can also take advantage of partial 1035 Exchange, according to which only a part of total contract amount. For this, the company associated with your old plan must notify to the new plan offering company about all types of tax and gain benefits. There are companies, which don’t offer a partial 1035 exchange, because of the need of reporting tax to the new company.

Complex Nature of 1035 Exchange

A 1035 Exchange is of complex nature and all the rules associated with it must be completely understood before following the action. For instance, you might have to bear surrender charges before transiting from an old plan to a new one. Along with that, the surrender charges and other costs associated with new plan can make the process more complex. However, the tempting new benefits can encourage you to accept this transition.

All other rules remain intact even if you move from an old plan to a new one. For instance, the tax penalty of 10% is incurred on withdrawals before 59 and half years of age. Variable annuity is the subject of market fluctuation and thus, you must take extra care in applying this exchange for variable annuity plans. A professional in the field of finance can help you in this direction.