The IRS has released guidance [Rev. Proc. 2011-38] that substantially liberalizes the rules for partial exchanges of annuity contracts.

Section 1035 allows a tax-free exchange of an annuity contract for another annuity contract. Congress introduced the tax-free exchange because it recognized that the needs of life insurance and annuity owners change over time and that it would be unfair to tax them when they switched policies to better meet their needs.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For in-depth analysis of Section 1035 exchanges, see Advisor’s Main Library: E – Non-Taxable 1035 Exchange of Contracts. See also, Advisorfyi.com, Income Tax: Partial Annuity Exchanges Under Section 1035

Tags: Business, Contract, insurance, Internal Revenue Service, IRS, Life annuity, life insurance, Tax

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