Tax Free Exchange (Section 1035)

What is a 1035 Exchange?

Under Section 1035 of the Internal Revenue Code it is possible to exchange an annuity or a life insurance policy without it being recognized as income. (“A 1035 Exchange”) Instead, the cost basis in the old policy will be carried over to the new policy.

A 1035 Exchange is the tax-free exchange of:

1. A life insurance policy for another life insurance policy or annuity,

2. An annuity for another annuity.

1035 Exchange FAQs:

• 1035 Exchange FAQ

1. What are the requirements for an exchange to qualify as tax-free?

2. Is the exchange still tax-free if cash or other property is received or if there is an outstanding loan?

3. Can a fixed annuity be exchanged for a variable annuity? Can a whole life insurance policy be exchanged for a variable life insurance policy?

• 1035 Exchange FAQ 2

1. Can the exchange of an annuity for a life insurance policy be tax-free?

2. What is the cost basis of the new annuity or life insurance policy?

3. Is a Form 1099-R issued for a 1035 Exchange?