1035 Exchange: How to Move an Annuity Without Paying Tax
By Hans Goldstein, EA, founder, Retirement Literacy Foundation · Updated
Admitted to practice before the IRS.
What can be exchanged
- Annuity to annuity: allowed.
- Life insurance to annuity: allowed.
- Life insurance to life insurance: allowed.
- Annuity or life insurance to a qualified long-term care contract: allowed since 2010.
- Annuity to life insurance: not allowed tax-free.
The owner generally has to be the same on both contracts. Money is sent insurer to insurer; if a check is made out to you, it is a taxable withdrawal, not an exchange.
Partial exchanges and the 180-day rule
You can move only part of an annuity into a new one. Under IRS Revenue Procedure 2011-38, a partial exchange keeps its tax-free treatment as long as you do not take a withdrawal from either contract (or surrender either) within 180 days of the transfer, other than annuity payments for life or a set period of 10 years or more.
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What to check before exchanging
- Surrender charges on the old contract, and a new surrender period that usually starts on the new one. See surrender charges.
- Benefits you would give up: an enhanced death benefit, an income rider with a built-up value, or an old contract's guaranteed minimum rate.
- Pre-1982 money. Contracts funded before August 14, 1982 have older, friendlier withdrawal tax rules, and an exchange can keep that treatment for the old money if done correctly.
- Who benefits. A replacement usually pays a new commission. Most states require a replacement form that compares the old and new contracts. Read it.
How it is reported
The old insurer issues a Form 1099-R with code 6 in box 7, which marks a tax-free exchange (IRS Publication 575, 2025), and the new insurer records your carried-over basis. Keep both records; the basis matters when you eventually take money out. See how annuities are taxed.
Common questions
Is a 1035 exchange taxable?
No, if it is a qualifying exchange done as a direct transfer between insurers. Any cash you receive in the process (boot) is taxable to the extent of the gain.
Can I 1035 exchange an annuity into life insurance?
No. An annuity can only be exchanged tax-free into another annuity or a qualified long-term care contract.
Is there a limit on how often I can do a 1035 exchange?
There is no federal limit, but each new contract usually starts a new surrender period, and frequent replacements can cost you in surrender charges and lost benefits.
Related on RLF: Hybrid long-term care coverage and 1035 exchanges
Sources (checked October 10, 2026): Internal Revenue Code section 1035; IRS Revenue Procedure 2011-38; IRS Publication 575, 2025 (transfers of annuity contracts).
Related
- Surrender charges and getting out
- How annuities are taxed
- Annuity types, pros and cons
- FIA minimum caps study
- All annuity education pages
More on annuities: How Do Annuities Work? A Plain-English Guide · How Are Annuities Taxed? · Inherited Annuity Taxes · Annuities in an IRA · Annuity Surrender Charges and How to Get Out of an Annuity · Types of Annuities and Their Pros and Cons · What Is a MYGA? Multi-Year Guaranteed Annuities Explained · Fixed Index Annuity Explained · Immediate Annuity (SPIA) Explained · Variable Annuity Explained · Annuity vs CD
Education only; nothing is sold here and no product is recommended. The Foundation's work is independent of any outside professional activity. RLF sells nothing and accepts no funding from financial companies. Tax rules depend on your situation; check with a tax professional before acting.
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Hans Goldstein, EA
Founder & Executive Director · Retirement Literacy Foundation, a 501(c)(3) non-profit
Admitted to practice before the IRS
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