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An Overview of 1035 exchange of A Fixed Annuity

Sometimes it gets necessary to terminate your current fixed annuity scheme and buy a different new scheme. Normally, the premature termination of an active plan leads to some huge tax penalties. Therefore, some money, which you could have used in other areas, is lost. The 1035 exchange provides guidelines under which such a transaction can take place without any taxes being imposed on a person. The name comes from the IRS code section of 1035a to 1035d. However, there are strict guidelines for these transactions.

The first thing that you should ensure is that you can only sell one annuity and then buy similar one ad well. Moreover, it is also stated that you should only buy assets of equal amounts only. You should not sell the venture. Keep some money and use the balance to buy a new scheme. That would attract some penalty. The third requirement is that you should actually not withdraw the money for you to get cash. Instead, you may try to make the sell and purchase transactions between the concerned firms. This means that you should try to avoid the temptation of taking the cash with you. Otherwise, you will find yourself not enjoying the privilege of not paying taxes.

The 1035 exchange of a fixed annuity in United States has many benefits. One, the fact that there are no taxes involved in this transaction means that any investor can change his current annuity for a more competitive rate. Therefore, the person will make more money with the same capital. Two, since most firms would want to keep their customers, they usually provide more competitive rates. The investors stand to benefit as well. Three, there are some firms that might not provide satisfactory death benefits. As a result, an investor in such a situation is able to search for a better deal where he will have better benefits if he dies before getting all his payments. Such benefits ensure that someone’s money never goes into waste. Another reason that might cause an investor to change his annuity for another is the decrease in the rating of an insurer by any of the bureaus. Therefore, the investor prevents any possible loss of his investment due to the collapse of such a firm. Even though you do not pay taxes, you have to follow a certain process before selling doing the 1035 exchange for your fixed annuity investment.

The first step of the process is to apply for the new annuity with a firm of the investor’s choice. This new firm is usually designated as the custodian of the investor’s money. After that, this firm will evaluate your application. If they find it befitting to grant your request, they will send a 1035 exchange to the firm that you had initially invested in. Moreover, the new firm requests the old insurer to send the investor’s money to them as well.

However, a request for transfer of your money can take as long as six months before being successfully done. This is because the old firm will want to keep you as a customer. These firms only release your funds if they fail in keeping you as their client. That is when they usually send your money to the address in the 1035 exchange request form.

Moreover, the old insurer also provides the new insurer with the information necessary for taxation purposes. However, when you succeed in the exchange, you can always reverse the process within a period of month. This is if you are not impressed by the new firm.

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