Learn about understanding the 1035 exchange and safe money retirement strategies at SafeMoney.com.
Direct answer: A 1035 exchange — named after Section 1035 of the Internal Revenue Code — lets you replace one insurance product with another (annuity to annuity, life insurance to life insurance or annuity) without triggering a taxable event. Gains accumulated in the original policy transfer directly to the new one and continue growing tax-deferred. Exchanges are most common with annuity contracts, typically to obtain better rates, lower fees, or stronger guarantees.
The IRS explains the tax-free exchange treatment in Publication 575, Pension and Annuity Income. The transfer must go directly between insurance companies — if you take the money yourself, it becomes taxable. New surrender periods usually apply to the new contract, so compare surrender charges, features, and guarantees before exchanging.
If you're weighing a swap, it helps to understand the different types of annuities and how their guarantees compare.
Connect with a licensed SafeMoney advisor who specializes in retirement income planning and guaranteed income solutions.