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An investor in a variable annuity is considering transferring to a different annuity through a 1035 exchange. Which of the following is true of a 1035 exchange?

A. A 1035 exchange is a taxable event.
B. A 1035 exchange avoids taxes on the amount transferred.
C. A 1035 exchange avoids both surrender charges and taxes.
D. A 1035 exchange avoids surrender charges but not taxes.



Answer :

GinnyAnswer

Final answer:

A 1035 exchange in annuities enables tax-free transfers without triggering taxes or surrender charges.


Explanation:

A 1035 exchange in the context of annuities allows an individual to transfer funds from one annuity to another without incurring taxes at the time of transfer.

It is not a taxable event as long as the funds are transferred directly between insurance companies to acquire a new annuity. This exchange avoids taxes on the amount transferred and usually avoids surrender charges as well, providing a tax-efficient way to adjust annuity investments.


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