Exchanging Annuities Pros and Cons

Section 1035 of the tax code allows an investor to exchange one annuity for another without tax occurrence. But, before availing this specific exchange offer, it is prudent to examine the likely repercussions to ascertain the exchange of annuities pros and cons.

Broadly speaking, exchanging annuities pros and cons could be classified into three various kinds - Fixed Annuities (FA), Variable Annuities (VA) and Indexed Annuities (EIA).

Exchanging fixed annuities pros and cons:

pro--the ability to get a higher rate
pro--the possibility of a higher rated annuity (i.e. safer)
pro--possibility f new features--such a coverage for long term care built in
pro-potential for a first year bonus

con--new surrender fee schedule that will last years

Exchanging variable annuities pros and cons

pro--the possibility of better investment options
pro--the possibility to obtain riders not previously available (GMIB rider and GMP rider)

con--new surrender schedule
con--watch out for high fees buried in the prospectus

Exchanging indexed annuities pros and cons

pro--better participation rate, higher cap, obtaining an annual reset feature

con-never switch in the middle of a term or you lose any index-related gains
Exchanging between different types of annuities pros and cons

Can you exchange a variable for a fixed annuity or a fixed annuity for an indexed annuity? YES. Just be sure that the owner and beneficiaries are the same and that all elements of IRS section 1035 are complied with.

The reasons for such a an exchange of annuities might be that you retire and become more conservative so you desire to exchange your variable annuity for a fixed annuity. Or another scenario might be that years ago you selected at an equity indexed annuity because of the principal guarantee. Now however, many variable annuities have similar guarantees that they didn't have a decade or more ago. regardless of which type of annuity may seem best for your current circumstances, just make sure you review the above exchange of annuities pros and cons.