1035 Exchange & the Transfer Annuity

Let’s set the stage.  The advisor and client agree that Annuity Care is the best way to address their LTC concern.  It seems like a slam dunk, the client has a boatload of nonqualified money parked in an index annuity and they want to carve off a small portion to fund their protection.

The problem arises.  The ceding carrier does not allow for a partial 1035 exchange from their deferred annuities. The advisor fears that the tax-free solution is dead, however other options exist.    

Here are three:

  1. find a new funding source (cash, income, other assets),
  2. begin taking taxable distributions from the annuity to fund an Asset-Care policy using recurring premiums, or
  3. 1035 exchange the deferred annuity into a OneAmerica Transfer Annuity using a portion of the proceeds to execute the Annuity Care funding before moving the balance into ANY deferred annuity with any carrier.

Keep in mind the objective of this transaction was to transform and leverage tax-deferred accumulation form the existing nonqualified deferred annuity into a tax-free long term care benefit.

Using the Transfer Annuity, the objective was accomplished.

As noted in my article above and in articles from the past few months discussing 1035 exchanges, the tax advantages presented to the Pension Protection Act and IRC Section 1035 offer a tremendous opportunity to implement a “revenue neutral” protection plan using an Annuity Care product solution.

Do you have a case where you need some ideas?

Contact me via email at kevin.fisher@oneamerica.com  or call my internal sales partner Justin Fox at (844) 658-3725.