Section 1035 of the tax code allows an investor to exchange one annuity for another without tax occurrence. But, before availing this specific exchange offer, it is prudent to examine the likely repercussions to ascertain the exchange of annuities pros and cons.
Exchanging fixed annuities pros and cons:
pro--the ability to get a higher rate
pro--the possibility of a higher rated annuity (i.e. safer)
pro--possibility f new features--such a coverage for long term care built in
pro-potential for a first year bonus
con--new surrender fee schedule that will last years
Exchanging variable annuities pros and cons
con--new surrender schedule
con--watch out for high fees buried in the prospectus
Exchanging indexed annuities pros and cons
pro--better participation rate, higher cap, obtaining an annual reset feature
con-never switch in the middle of a term or you lose any index-related gains
Exchanging between different types of annuities pros and cons
Can you exchange a variable for a fixed annuity or a fixed annuity for an indexed annuity? YES. Just be sure that the owner and beneficiaries are the same and that all elements of IRS section 1035 are complied with.
The reasons for such a an exchange of annuities might be that you retire and become more conservative so you desire to exchange your variable annuity for a fixed annuity. Or another scenario might be that years ago you selected at an equity indexed annuity because of the principal guarantee. Now however, many variable annuities have similar guarantees that they didn't have a decade or more ago. regardless of which type of annuity may seem best for your current circumstances, just make sure you review the above exchange of annuities pros and cons.