Federal Tax Considerations for Life Insurance and Annuities
What is the tax effect of a properly executed section 1035 exchange?
Answer and explanation
Answer: C. The point of section 1035 is that no gain or loss is recognised on the exchange, with the basis of the old contract carried into the new one so the gain is preserved for later. Stepping the basis up to value would forgive the gain, which the section does not do.Source: 26 U.S.C. § 1035 — 26 U.S.C. § 1035(a)
More federal tax considerations for life insurance and annuities questions
- Why is a direct trustee-to-trustee transfer usually preferred to a sixty day rollover?
- Why must a section 1035 exchange be carried out between the two insurers rather than by the owner?
- Within what period must a distribution be rolled over to another qualified plan or individual retirement arrangement to avoid current tax?
- A death benefit is excluded from the beneficiary's income. Does that settle the position for estate tax as well?
- A participant takes an eligible rollover distribution as a cheque rather than by direct transfer. What follows?
- A participating policyowner in good health wants each declared dividend to increase the amount of insurance without new underwriting. Which use fits?
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