The popularity of tax-deferred annuities has increased since the 1970’s into a natural choice for safe money alternatives for many Americans. The primary reason is the lack of exposure to market risk and the contractual guarantees provided by these products. Many of the benefits that first attracted consumers to annuities, tax deferral, and probate avoidance, have been replaced with the need for guarantees and having funds fully risk-proof.
With the large volume of funds available in annuity contracts, the need for managing the expected yields of these products falls directly on the back of the consumer or annuity contract owner. Insurance companies plan for funds in annuities to remain intact, and they base their investment portfolio of long-term earnings.
However, as an annuity ages, the yield can be reduced to the contractual minimum by the insurance company. What tools are available to the consumer to maximize yield without exposure to tax liability due to the tax deferral of accumulated funds within the annuity?
The answer is simple; an IRS allowed Section 1035 IRC Tax-Free Exchange.
How is this annuity ownership right and tool and how can it be utilized most effectively in this current volatile financial environment? The Section 1035 exchange permits the annuity owner to preserve the tax-deferred status of the account and exchange without tax liability to any other company’s available annuity product. The marketplace then will dictate what interest rates are available and the current company may still be able to match the newer offered interest rates. Competition is the key and competition should provide higher interest rates to the annuity owner.
Failure to look at new options for interest rates puts the annuity company at an advantage and the annuity owner at a disadvantage. The fixed annuity that you currently own could be entering into a time period where the volatility of interest rates could provide you with higher yields. It is essential to be aware of what your options are and to manage your annuity.
Make your current annuity company be competitive with what is available in the marketplace and remember, the only loyalty that should be considered is to you.
Find the highest possible yield for yourself and use the IRS Section 1035 to move your funds without tax liability.