Refinance

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Refinance guide

1035 exchange options

A 1035 exchange is the IRS-approved method for moving from one annuity to another without triggering taxes on your gains. It's the cornerstone of annuity refinancing — but it has rules, limitations, and trade-offs you need to understand before proceeding.

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Exchange eligibility check

Find out if your situation qualifies for a tax-free 1035 exchange.

What do you currently own?

What do you want to move into?

Is your contract qualified or non-qualified?

A tax strategy, not a fee dodge

Named after Section 1035 of the Internal Revenue Code, a 1035 exchange allows you to transfer the value of an existing annuity directly to a new annuity contract without triggering a taxable event. It is the mechanic that makes refinancing possible — but its protection is purely about taxes.

Key distinction

A 1035 exchange prevents a taxable event but does not prevent surrender charges, market value adjustments, or the loss of existing benefits on the old contract.

What qualifies for a 1035 exchange?

Annuity contract → Another annuity contractQualifies

Life insurance policy → Annuity contractQualifies

Annuity contract → Qualified LTCI contractQualifies

Annuity contract → Life insurance policyNo

The exchange must involve the same owner. Both qualified (IRA) and non-qualified annuities can be exchanged, though qualified money is typically moved via a trustee-to-trustee transfer rather than a formal 1035.

Common 1035 exchange scenarios

Variable AnnuityFixed Indexed AnnuityMost popular

Reduces annual fees from 2.5–3.5% to 0–1.25%, adds principal protection, and may add a lifetime income rider. Eliminates market risk.

Old FIANew FIA with better ratesRate improvement

If your surrender period has ended and your current FIA's renewal rates are uncompetitive, exchanging to a new FIA with higher caps or better participation rates can significantly improve your position.

MYGA at maturityNew MYGA or FIAMaturity rollover

When your MYGA matures and the auto-renewal rate is lower than today's new-money rates, a 1035 exchange locks in the current higher rate environment without triggering taxes on accumulated gains.

Variable AnnuityRILAFee reduction

If you want to reduce fees and maintain some market exposure with defined downside protection, exchanging a high-fee VA for a RILA can cut costs while preserving growth potential.

Any deferred annuitySPIA (immediate income)Income now

If you need income now, exchanging a deferred annuity into a SPIA via 1035 converts your accumulated value into immediate guaranteed lifetime income — tax-free on the exchange itself.

The 1035 exchange process

Review your current contract

Identify accumulation value, surrender charges, benefit base, riders, and death benefit. Understand what you'll lose by exchanging.

Select the replacement product

Compare rates, fees, features, and carrier strength. Ensure the new product delivers a genuine improvement.

Apply for the new annuity

The application will include a section indicating this is a 1035 exchange and will require details about the existing contract.

Sign the exchange paperwork

The new carrier provides 1035 exchange forms. Sign and submit to the new carrier, who initiates the transfer with the old carrier.

Direct transfer occurs

The old carrier liquidates your contract and sends proceeds directly to the new carrier. You never touch the money.

New contract is issued

The new carrier issues your contract with the transferred value as the initial premium. Your cost basis carries over.

Important rules and warnings

Surrender charges still apply

The 1035 exchange does not waive surrender charges on the old contract. Calculate the net transfer amount after charges before comparing outcomes.

The 180-day rule for partial exchanges

For partial 1035 exchanges, no withdrawals from either contract within 180 days of the transfer, or the exchange may be reclassified as taxable.

New surrender period begins

The new contract will have its own surrender schedule. You are committing to a new lock-up period of typically 5–14 years.

Rider values do not transfer

Benefit bases, income riders, death benefits, and other contract-specific features stay with the old contract. They do not carry over.

Frequently asked questions

Does a 1035 exchange trigger a tax event?

No, provided the transfer is direct (carrier-to-carrier) and involves qualifying contracts. You will receive a 1099-R with code 6 showing $0 taxable amount.

Can I do a 1035 exchange while still in a surrender period?

Yes, but you'll pay the surrender charge on the old contract. The net amount after the charge is what transfers to the new contract.

How long does a 1035 exchange take?

Typically 2–6 weeks from submission of paperwork to issuance of the new contract. During the transfer period, your money is not earning interest in either contract.

Can I exchange into a product at a different carrier?

Yes. 1035 exchanges are most commonly done between different carriers. The exchange can also be done within the same carrier if you're moving to a different product.

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Should I Replace?Compare Your Contract Better Income Lower Fees 1035 Exchanges (Deep Dive)Annuity Taxes

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