Difficulty: Easy

Average Score: 100%

All the following policies qualify for a 1035 Exchange EXCEPT

Rationale

An annuity to a whole life policy does not qualify for a 1035 Exchange.

A 1035 Exchange allows for the tax-free transfer of certain types of insurance and annuity contracts. However, it specifically permits the exchange of one annuity for another or one life insurance policy for another life insurance policy, but not the transfer from an annuity to a whole life policy.

A (a whole life policy to an annuity.) YOUR ANSWER

This exchange is allowed under a 1035 Exchange. A whole life insurance policy can be converted into an annuity, allowing the policyholder to access benefits in a different form while maintaining tax advantages.

B (a whole life policy to another whole life policy.) YOUR ANSWER

This type of exchange is also permissible under a 1035 Exchange. Whole life policies can be exchanged for other whole life policies without incurring immediate tax consequences, as they are both classified as life insurance products.

C (an annuity to a whole life policy.) CORRECT

This option does not qualify for a 1035 Exchange. The IRS regulations specifically exclude the transfer of an annuity contract into a whole life insurance policy, meaning this type of exchange would result in a taxable event.

D (an annuity to another annuity.) YOUR ANSWER

This exchange is fully compliant with the rules of a 1035 Exchange. Annuities can be swapped for other annuities, allowing the policyholder to restructure their investment without facing immediate tax liabilities.

Conclusion

The 1035 Exchange provides a mechanism for tax-free exchanges between similar types of financial products, specifically allowing for the transfer of life insurance to life insurance and annuity to annuity. However, transferring an annuity to a whole life policy falls outside these parameters and triggers tax implications, thus making it the only option that does not qualify for a 1035 Exchange.

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