Exchanging One Annuity For Another

It is possible to exchange your annuity without paying income taxes on it. Under the IRS' 1035 exchanges, you can exchange one product for another, but you cannot receive any income or profit from surrendering the policy and then apply that money to the purchase of a new annuity without paying taxes on it.

Only even exchanges qualify for tax-free status. Although annuity exchanges may carry no income tax penalty, you should check to see if there will be any additional fees from your life insurance company such as surrender fees. Getting a new annuity contract may also carry new fees incurred when you initially sign up for the contract. These may be mortality and expense risk charges, administrative fees or underlying fund expenses.

In some cases exchanging your annuity for a different contract may be the best decision in the long run. A financial advisor may be able to help you determine if an exchange would be profitable for you. If you are interested in annuity quotes, you can use this independent comparison website to get multiple annuity quotes from various companies.

Sources

1. Should You Exchange Your Variable Annuity? (2006). Retrieved June 3, 2008, from http://www.finra.org/InvestorInformation/InvestorAlerts/AnnuitiesandInsurance/ShouldYouExchangeYourVariableAnnuity/p006045