Which of the following is a permissible tax-free Section 1035 exchange?
Explanation
A life insurance policy may be exchanged tax-free for an annuity under Section 1035, but the reverse (annuity to life insurance) is not permitted, because that would move gain into a contract whose death benefit is income-tax-free. Exchanging an annuity for a mutual fund is not a like-kind insurance exchange, and a Roth IRA for a car is not an exchange at all. Remember the one-way rule: life can become an annuity, but an annuity cannot become life insurance under 1035.
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Related questions on this topic
- A life insurance policy becomes a modified endowment contract (MEC) when it:
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