You can't rollover proceeds from an insurance policy into an IRA.
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.
IRA Prohibitions
IRAs and life insurance policies
don't mix. You can't buy life insurance within an IRA. You also can't
contribute an insurance policy to an IRA or roll a policy from an employer plan
into an IRA. About the only way to get assets from an insurance policy to an
IRA is to cash in the policy and contribute the money to the account. However,
you'll have to treat the money as taxable income.
