49. Which of the following is NOT a valid 1035 exchange?
Answer: D
Annuity to life is NOT a valid 1035 exchange.
A 1035 exchange does not permit the transfer from an annuity to a life insurance policy. Instead, it allows for specific types of exchanges, and the transition from an annuity to a life insurance policy does not meet the criteria.
A) Life to life
This option is valid as a 1035 exchange. The transfer of one life insurance policy to another is permissible under IRS Section 1035, allowing policyholders to exchange life policies without incurring tax liability.
B) Annuity to annuity
This option is also valid. A 1035 exchange allows for the transfer of one annuity contract to another, facilitating changes in investment strategies or insurance carriers without immediate tax consequences.
C) Life to annuity
This option is valid as well. A policyholder can exchange a life insurance policy for an annuity contract under a 1035 exchange, aligning with the IRS guidelines for such transactions.
D) Annuity to life
This option is not valid. Under IRS Section 1035, exchanging an annuity for a life insurance policy is explicitly prohibited, making this choice incorrect.
Conclusion
In summary, the exchange of an annuity to a life insurance policy is not allowed under 1035 rules, which clearly delineate the types of exchanges that can take place. Options A, B, and C reflect valid transactions, while option D stands out as the only invalid exchange, confirming it as the correct answer.