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1035 Exchanges: Moving Between Annuities Without a Taxable Event

A 1035 exchange lets you move from one annuity (or certain life insurance policies) to another without triggering immediate taxation. Here's how it works.

6 min readReviewed for the 2026 plan year

Annuities · Jenkins Insurance & Retirement

1035 Exchanges: Moving Between Annuities Without a Taxable Event

A 1035 exchange lets you move from one annuity (or certain life insurance policies) to another without triggering immediate taxation. Here's how it works.

What a 1035 Exchange Is

Named after Section 1035 of the Internal Revenue Code, this provision allows certain exchanges between annuity contracts (or from a life insurance policy to an annuity) without triggering immediate income tax on any gain, provided IRS requirements are met.

Why Someone Might Consider One

  • Moving from an older contract with less favorable terms to one with different features
  • Accessing a different crediting method or rider not available on the original contract
  • Consolidating multiple contracts

Important Considerations Before Exchanging

  • Surrender charges on the existing contract may still apply if you're within its surrender period
  • The new contract begins its own new surrender period, which may be longer than the time remaining on the old one
  • Any optional riders or benefit bases on the old contract are generally lost and don't transfer to the new contract

Key Takeaways

  • A 1035 exchange can move annuity value to a new contract without an immediate taxable event, if IRS rules are followed.
  • Existing surrender charges may still apply, and the new contract starts its own surrender period.
  • Benefits and riders on the original contract are typically lost in an exchange — compare carefully before proceeding.

This is general tax and product education, not tax or financial advice. 1035 exchange rules are technical and outcomes depend on the specific contracts involved. Consult a qualified tax professional and licensed advisor before exchanging any contract.

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