submitted by Rosemary G. Caligiuri, CASL™, President, Harvest Group Financial Services
Yes. However, to receive favorable tax treatment, the exchange must satisfy the requirements of a Section 1035 exchange. According to Section 1035 of the Internal Revenue Code, you can exchange one annuity for another without the immediate recognition of any gain or loss, as long as the following requirements are met:
- The annuity cannot be cashed in and the proceeds then used to purchase a new annuity contract. Rather, the value of the old annuity must be transferred to the new annuity, usually by assigning rights to the old annuity to the company issuing the new annuity.
- The exchange must involve like-kind property (i.e., property that is similar in nature or class and of equal value). If the annuitant receives cash or a payment in kind of cash or property, then that part of the exchange involves property that is not like-kind and may be taxable.
- Under the new contract, the owner, along with the annuitant, must be the same as under the old contract. Both contracts must also be payable to the same person(s) (the beneficiary).
Also, be aware that surrender charges may reduce the value of the annuity you transfer. In addition, the new annuity likely will impose a new set of surrender charges.
Any information contained herein should not be construed as tax or legal advice. It is always recommended that you consult a qualified tax or legal professional regarding your personal situation.