May 1st 2009 08:35 am Does Your Annuity Company Have You Over a Barrel?
The solution is to always insist your annuity earn the new money rate and to NEVER earn the old money rate! How do you do it? Can you avoid any tax liability? Once again the answer is yes, yes you do have options.
The IRS allows you to transfer your annuity from one company to another without tax liability providing you access the 1035 exchange.
What is a 1035 Exchange?
The 1035 exchange refers to the section of tax code that allows annuity owners the flexibility to exchange one annuity for another without incurring any tax liabilities.
A 1035 exchange is most typically utilized when an annuity holder desires to upgrade their annuity either for a higher interest rate of for better contractual provisions. Under IRC Section 1035, an annuity contract is exchanged for a new contract, the transfer is considered a nontaxable event if specific guidelines are met.
Always make certain your financial advisor or agent checks with your existing insurance company to see if you may be exposed to surrender penalties. Also make certain you fully understand and restrictions or surrender penalties you may incur with the new annuity contract. Make sure that any future improvement of your interest rate is worth the potential loss of flexibility.
By using the 1035 exchange you can regain control over what interest rate you are earning and it can allow you to move from a longer term surrender penalty to a much shorter time period. New products are available in many states that only have a 3 year surrender penalty. These shorter time periods allow you to move your annuity on a regular basis to always earn the highest rate available.
The tax basis in your old annuity always rolls to the new annuity. This can provide you with better options in the future for income options if and when the funds are accessed. As an example if the original deposit on your first annuity was $25,000 and the annuity had grown to a value of $40,000 when the original annuity is 1035 exchanged to a newer contract your original basis is still $25,000. This allows you the benefit of moving your annuity and keeping your tax liability intact.
Bill Broich is thirty year annuity salesman who seniors manage their retirement money. To discover more visit his website: annuity.com Annuity Quotes
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