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Variable annuities are the most interesting annuity offered by insurance companies for investors interested in safe money investments. Variable annuities act as assorted assets including stocks, bonds, or mutual funds with less risk and are subject to inflation expenses in the stock market. Annuitants who have kept their policies for the last 10-20 years may have noticed the newer versions and contracts available, but were scared to surrender non-performing ones with their insurer. The IRS has issued a new clause, 1035 exchange, to help investors trade in their current annuity for an efficient one. What is the 1035 Exchange? The new tax clause of 1035 exchange allows current variable annuity holders to opportunity to switch out an outdated, unprofitable contract for a newer, more efficient one. With this new clause in effect, many policyholders have evaluated their need for the higher returns available in newer editions of their contracts. Many are delighted to have this opportunity to end an unsuccessful contract to work towards better investments. Now, the help needed to reduce fees is available with the 1035 exchange. How does it help investors? In most occasions, the exchange helps investors ease out of the substantial surrender charges their insurance company may charge (up to 15%) on the principal of the account. The regulations of the 1035 exchange include keeping the name of the annuitant the same, not accepting a check from the old one, and confidence in the new insurance company offer. Downside to the Exchange The exchange may not be well if the insurance company tacks on high fees for surrendering the account. Some insurance companies have charged investors up to 50 cents per dollar of the account because of the exchange. When the fees outweigh the potential growth, it is best to surrender the account and invest into mutual funds or an index-equity annuity. Investors can remove the headaches of under-performing annuities by investing in more profitable vehicles to make more money. Annuitants should consult with their financial advisers before making a definite decision. The 1035 exchange may require a tax loss if it is not done correctly. Many investors have lost a substantial amount of money from their variable annuity because of this. Anyone interested in the basis of the exchange can move into a new account by keeping all of their information the same then continue their contributions. Ask for Advice Contact a tax specialist to review the prospectus of your current agreement in comparison to your prospective annuities. Your tax adviser may pinpoint issues that can arise based on the current principal in your investment and the initial surrender charges tacked to the account. More information is available from reviewing the clause in detail by reviewing the IRS publication with a tax specialist. The news of income tax free exchanges may not be for everyone. In concluding this observation, take your time to figure out the best move for your retirement. You do not want to make a mistake and lose thousands of you investment because of an impulsive decision.
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