Tax TreatmentQuestion 705 of 716
A Section 1035 exchange permits a tax-free transfer between:
a.Like insurance contracts, such as life-to-life, life-to-annuity, or annuity-to-annuity
b.An annuity and a personal checking account
c.A health policy and a pension plan
d.A life insurance policy and an ordinary consumer car loan carried at the policyowner's own bank
Explanation
Section 1035 allows tax-free exchanges among like contracts, letting a policyowner move to a better product without triggering tax on the gain. Transfers to unrelated financial accounts do not qualify.
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Related questions on this topic
- Distributions from a traditional, fully pre-tax qualified retirement plan are:
- A ten percent federal tax penalty generally applies to taxable withdrawals from annuities and qualified plans taken before the owner reaches age:
- Accelerated death benefits paid to an insured who has been certified as terminally ill are generally:
- Which 1035 exchange is NOT permitted on a tax-free basis?
- The main tax disadvantage of a Modified Endowment Contract (MEC) is that:
- The general rule that life insurance death proceeds are income-tax-free can be lost under the 'transfer-for-value' rule when the policy is:
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PrepPass team · Verified against California Life & Health Insurance License Exam · How we review
Reviewed by John Zihao Zhang — California-Licensed Life Insurance Agent (CA Dept. of Insurance License #4396095 — verify)