What is a 1035 Exchange?
Discover how a 1035 exchange can help you upgrade your existing annuity to one with improved features or a higher interest rate.
The 1035 exchange refers to the section of tax code that allows investors the flexibility to exchange one annuity for another without incurring any immediate tax liabilities.
A 1035 exchange is most typically utilized when an annuity holder decides they want to upgrade an annuity to a more favorable one, but they do not want to activate unnecessary tax liabilities that would typically be encountered when surrendering an existing annuity contract. Under IRC Section 1035, when one annuity contract is exchanged for another, the transfer is considered a nontaxable event if specific guidelines are met.
There are many reasons an individual might want to initiate a 1035 exchange within their retirement plan, ranging from access to higher interest rates, a change in their financial strategy, or to gain improved benefits or features based on personal requirements. The process of changing over an annuity through a 1035 exchange should never be taken lightly though.
Be sure to have your financial advisor thoroughly check with the insurance company that holds your existing annuity contract to determine if any penalties or surrender charges will be imposed for exchanging your current annuity. Keep in mind that even if the existing annuity has matured past any surrender charges, that moving into a new annuity contract could likely lock you into a new surrender charge period. Make sure that any future improvement of your interest rate is worth the potential loss of flexibility for instant liquidity that you could have already qualified for.
Always consult with an independent financial planner, who can give you objective advice on what annuities are available and how they would compare with your existing product.
If you are going through the process of a 1035 exchange, you owe it to yourself to make sure than any annuity upgrade you initiate is the smartest move for your circumstances. A small amount of extra time and due diligence can go a long way to enhance the success and security of your retirement plan.
The availability of the 1035 exchange can also be a great catalyst to evaluate where your annuity is currently heading, and how well it is functioning within your financial plan. If you would like one of our independent members to evaluate your 1035 exchange, click the link below, or call us toll free at 1-888-429-3070.
1035 Exchange Evaluation
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