What is a 1035 Annuity Transfer?
The Annuity Man
Our friends at the IRS have a code (1035) that address annuity to annuity transfers that are held outside of a qualified (i.e. IRA) account. That 1035 annuity transfer is a non-taxable event. For the record, the IRS 1035 Rule also covers life insurance to life insurance transfers, and life insurance to annuity transfers. If you are keeping score, annuities can NOT be transferred to life insurance policies.
Even though life insurance companies issue annuities, the 1035 Rule does not apply to annuity to life insurance transfers. It's important to point out that not all annuities can be transferred.
Single Premium Immediate Annuities (SPIAs), Deferred Income Annuities (DIAs), and Qualified Longevity Annuity Contracts (QLACs) are not transferable. SPIAs, DIAs, and QLACs are all considered "annuitized" contracts. That means there is no liquidity, and you can't transfer those policies to another annuity policy.
The primary annuity types that are transferable and can take advantage of the IRS 1035 Rule are Variable Annuities (VAs), Multi-Year Guarantee Annuities (MYGAs), and Fixed Index Annuities (FIAs). These are all considered deferred annuities.
Just because you can transfer from one annuity to another...doesn't mean that you should. Anytime you are transferring annuities, the receiving (i.e. new) annuity has to be mathematically and contractually better for the client than the annuity that they are leaving. In the application, you have to do a literal side-by-side comparison of benefits to make sure the transfer is in your favor.
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