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Overview of the 1035 Exchange

1035 Exchange is simply the section of tax code that offers investors the flexibility to exchange one kind of annuity for another without having to incur any kind of immediate tax liability.  If for instance, you’re currently investing in one annuity for retirement type and you decide to switch over to another type, the 1035 exchange can easily help you out.  All you need is to follow the rules.

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Actually, annuity for retirement can become a good investment opportunity when it’s working well for you.  It’s a kind of contract you enter with a reliable insurance company whereby you invest a lump sum in the company’s product. In turn, the insurance company guarantees you income payments on agreed date.  You can easily change one type of annuity with another through the 1035 exchange program without incurring any tax liabilities.

In most cases, the 1035 exchange is mainly used when an annuity holder decides to upgrade to a more favorable kind of annuity for retirement   type without hoping to be bogged down by any tax constraint. Oftentimes, the tax liabilities are encountered when you want to surrender an existing annuity contract for another.  However, with 1035 exchange, you’re sure to scale through the tax liabilities.

Usually, when annuity for retirement contract is being changed for another under the IRC section 1035, the transfer is normally considered a non-taxable situation especially if you’re able to meet the necessary requirements. There are basic terms and conditions usually involved in the   1035 exchange. You need to scale through them in order to completely avoid the tax liabilities that come with exchanging one annuity with the other.

Oftentimes, annuity investors do have some cogent reasons for initiating the 1035 exchange option within the current retirement plans they may have.  Some of the reasons may include   high interest rates, change in financial strategy, and other conditions.  One may decide to initiate the 1035 exchange to gain improved benefits on the retirement plan he or she has been using.  The major goal of the exchange is simply to enjoy more benefits from the kind of annuity investment you’ve been having.

Meanwhile, it’s important to note that the process of 1035 exchange should never be rushed. You don’t engage in it as you like.  You must be properly guided. It’s very important to engage a good financial advisor to help you check the stand of your annuities before initiating the 1035 exchange.  The financial advisor will go through the profile of the insurance company holding your current annuity contract in order to determine the stand of the annuity before you can ever think of initiating a change. If there’s no need for any kind of change, the advisor will let you know. He will check if there are surrender charges or penalties that will be imposed on your current annuity when you change. This prevents you from losing your investment.

It’s important to take your time to consider all the   options before changing whatever annuity for retirement plan you’ve been having. You’re sure to benefit a lot from the process if you take your time.