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Finance: What is a 1035 Exchange? 1 Views


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Description:

What is a 1035 Exchange? A 1035 exchange allows for certain financial instruments to be transferred tax-free. The IRS is ok with it because it usually happens when individuals exchange products (like life insurance and annuities) within the same financial institution.

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Transcript

00:00

Finance a la shmoop....what is a 1035 exchange? well why don't they

00:08

give these things a name like what pathos is there in a number well it [Arrow pointing to star in the solar system]

00:12

makes your life miserable remembering all these numbers and frankly doesn't

00:15

make our life any easier writing pithy epithets about them you know as we go

00:20

but all right we'll try here we go...A 1035 exchange is a swap more

00:24

specifically it's a swap relating to life insurance policies or annuities you

00:29

have one annuity or life insurance policy and want to exchange it for [Two life insurance policy documents]

00:32

another of similar value so you use at 1035 exchange to do it's like a legal

00:38

structure why well because a 1035 is tax-free.. tax-free yeah that's good why

00:45

would there be a tax when you're changing policies well an insurance

00:48

policy is just another form of an investment and with it comes a gain

00:52

usually over time so if you're exchanging an in theory you [Insurance policies exchanging]

00:56

could be realizing a gain that's taxable so if one policy fit your feet from age

01:01

25 to 45 and then it tripled in value over that time well you'd have

01:05

"realized a gain" if you sold it for cash and then use that cash to buy

01:11

another and you'd have a whole lot less cash left over after the feds you know

01:15

taxed you and being able to deploy that 1035 exchange tax loophole well you get

01:20

to keep all the value in that policy and use it to buy all the value of another

01:24

policy thank you insurance industry lobby and yeah you'll be dead but well [Richie Richpants gravestone]

01:30

others will too

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