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    Taxes & Annuities

    1035 Exchanges Explained

    A 1035 exchange lets you move from one annuity to another — or from life insurance into an annuity — without triggering current taxes on the gains.

    Two annuity contracts side by side on a desk
    A 1035 exchange can upgrade an old annuity without a tax bill.

    What Is a 1035 Exchange?

    Section 1035 of the Internal Revenue Code allows the tax-free exchange of certain insurance products — including annuity-to-annuity exchanges — without recognizing gain at the time of transfer.

    When It Makes Sense

    When a newer annuity offers better features, lower fees, stronger guarantees, or a better-rated carrier — and the surrender charges (if any) are reasonable relative to the upgrade.

    Common Mistakes

    Cashing out the old annuity and buying a new one breaks the tax-free treatment. The exchange must be carrier-to-carrier. Partial 1035 exchanges have additional rules.

    What to Compare Before Exchanging

    Surrender charges, new vs old guaranteed rates, rider benefits, fees, carrier financial strength, and how the new contract fits into your overall plan.

    The Bottom Line

    1035 exchanges are powerful but technical. Always run the numbers — and the trade-offs — before moving an existing annuity.

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