Group Life & AnnuitiesQuestion 116 of 315
Which of the following exchanges is NOT permitted on a tax-free basis under Internal Revenue Code Section 1035?
a.A life insurance policy exchanged for another life insurance policy
b.A life insurance policy exchanged for an annuity
c.An annuity exchanged for another annuity
d.An annuity exchanged for a life insurance policy
Explanation
Section 1035 permits tax-free exchanges life-to-life, life-to-annuity, and annuity-to-annuity. The one direction not allowed is annuity-to-life, because that would convert taxable annuity gains into a life insurance death benefit and undercut the tax rules.
Law Reference: 26 U.S.C. §1035Practice all 315 questions free — no signup required.
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