Outgoing Partial 1035 Exchanges Allowed on NQ Annuities

Outgoing Partial 1035 Exchanges Allowed

Effective 1/4/2017, EquiTrust now allows outgoing partial 1035 exchanges on non-qualified, inforce annuities.

This option is not available to RMDs, systematic withdrawals, income withdrawals, life-insurance policies, payout annuities or qualified annuity contracts.

If any portion of the Partial 1035 exceeds the free-withdrawal amount, surrender charges and MVA may apply – consistent with any other partial withdrawal.

At the time of the partial 1035 exchange, the taxable income and cost basis will be split proportionately.  The partial 1035 exchange transaction is a non-taxable event.

After a partial 1035 exchange, any subsequent partial withdrawals processed within a defined period of time are subject to IRS rules.  Questions about the tax implications of 1035 exchanges should be directed to a professional tax advisor.