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Bill
Bill, Enrolled Agent
Category: Tax
Satisfied Customers: 3152
Experience:  EA, CEBS - 35 years experience providing financial advice
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I have been told that a person can take a direct withdrawal ...

Resolved Question:

I have been told that a person can take a direct withdrawal from a nonqualified annuity and redeposit into another nonqualified annuity within 60 days so as to avoid a taxable event. A 1035 exchange is not permitted in this instance, but a 90% withdrawal is permitted. Can you confirm such a strategy? If permitted, please direct me to the IRS ruling on such.
Submitted: 8 years ago.
Category: Tax
Expert:  Bill replied 8 years ago.

No, a 1035 exchange would not be permitted in this situation. A 1035 exchange must be done directly between insurance companies, one contract is exchanged for another. If it was a qualified (IRA, 403(b)) annuity contract then the 60 day rule applies but it is not considered an exchange under section 1035.

http://www.irs.gov/irb/2007-21_IRB/ar15.html

http://www.irs.gov/pub/irs-wd/0622020.pdf

http://www.seniormarketadvisor.com/r/smaMag/d/contentFocus/?adcID=9694a6179c1a616e6d8efe98ca967b37

http://www.navanet.org/res/outlook/2003_articles/New1035Tax.pdf

 

 

 

Customer: replied 8 years ago.
Reply to Bill's Post: Thank you for your response. I apology for the delay in acknowleging. I realize that, as stated in my question, a 1035 is not permitted. Yet, I have been told that as long as the withdrawal is redeposited into another annuity, taxes and pre-age 59 1/2 penalties can be avoided. Yes?

Respectfully
Expert:  Bill replied 8 years ago.
If it is nonqualified annuity, then a rollover to another nonqualified annuity will not avoid any taxes or penalties. The rollover option is only available if it is a qualified annuity.
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