Devoted to the Insurance industry and all thing related

If you’re considering transferring money between annuities in a 1035 exchange then make sure and fully understand the process.  Simply put if you own an annuity and want to transfer the contract value to another annuity with a different insurer then you’d have to initiate a 1035 exchange.  This transfer is normally tax-free as long as you follow correct protocol.  

Recently the Internal Revenue Service handed down a ruling of a case involving a taxpayer who “tried to persuade the insurance company that sold the original annuity to transfer the annuity assets to the manufacturer of a second annuity by sending a check directly to the second company” according to National Underwriter. 

However, according to Josephine Firehock, a financial institutions and products specialist at the IRS “A taxpayer cannot shift assets from one annuity contract to another through a tax-free Section 1035 exchange by endorsing a check from one insurance company over to a second insurance company.”

It sounds like the annuity owner didn’t consult with an advisor before initiating the process and as a result has to pay taxes on the annuity contract value.  I can’t say enough the importance of speaking with a trusted insurance or financial advisor before making a transfer of any substantial amount of investment money.  In addition there should be some really compelling reasons to transfer the money.  This could be because the new insurer offers more investment options if it’s a variable annuity or a higher return for fixed annuities.  Take the time to look at your options before beginning an important financial transaction, especially with retirement money.