Over the years, the Internal Revenue Service (IRS) has released several private letter rulings (PLRs) and other guidance on how to properly utilize so-called "tax-free annuity exchanges."
The PLRs and guidance generally have taken the position that an annuity exchange is not a taxable event if certain conditions are met.
The key conditions that must be met are:
1) The exchange must be between two insurance companies.
2) The exchange must be for an annuity of equal or greater value.
3) The exchange must be for the sole purpose of continuing to receive periodic payments.
4) The exchange must not be part of a plan to surrender the annuity for its cash value.
If these conditions are met, then the exchange will be tax-free.
The IRS has also provided guidance on how to properly structure an exchange so that it meets the conditions above.
For example, the IRS has said that an exchange cannot be structured as a sale of the annuity contract and then the purchase of a new annuity contract.
The IRS has also said that an exchange cannot be structured as a loan or advance of funds.
The best way to structure an exchange is to have the insurance companies simply exchange the annuity contracts.
If you are thinking about exchanging an annuity, you should consult with a tax advisor to make sure that the exchange will be properly structured and that the conditions for a tax-free exchange are met.
The PLRs and guidance generally have taken the position that an annuity exchange is not a taxable event if certain conditions are met.
The key conditions that must be met are:
1) The exchange must be between two insurance companies.
2) The exchange must be for an annuity of equal or greater value.
3) The exchange must be for the sole purpose of continuing to receive periodic payments.
4) The exchange must not be part of a plan to surrender the annuity for its cash value.
If these conditions are met, then the exchange will be tax-free.
The IRS has also provided guidance on how to properly structure an exchange so that it meets the conditions above.
For example, the IRS has said that an exchange cannot be structured as a sale of the annuity contract and then the purchase of a new annuity contract.
The IRS has also said that an exchange cannot be structured as a loan or advance of funds.
The best way to structure an exchange is to have the insurance companies simply exchange the annuity contracts.
If you are thinking about exchanging an annuity, you should consult with a tax advisor to make sure that the exchange will be properly structured and that the conditions for a tax-free exchange are met.
