Make sure that is actually on the taxable Line 4d, not just on 4c.
What is a 1035 Tax Free Exchange?
A 1035 tax free exchange is the I.R.S. tax code that allows for the rollover of a non-qualified annuity (or transfer of a life insurance policy) to a new annuity or life policy of equal or greater value. Capital gains and/or income taxes will not be realized from this type of transfer when completed properly.
There are only three examples of a 1035 exchange:
- Annuity to Annuity
- Life Insurance to Life Insurance
- Life Insurance Cash Value to Annuity
The I.R.S. does not allow for a 1035 exchange from a tax deferred annuity to any type of life insurance policy. If you want to buy a life insurance policy with the proceeds from an existing annuity, you will first have to annuitize (or surrender) your annuity and pay taxes on any deferred gains.
