How to Tranfer a Non-Qualified Annuity

How do I get to the money?

Non-qualified annuities are supplemental retirement plans that are not designated employer plans or IRAs. Unlike a qualified plan, there is no limit to the contribution amount you can make in a non-qualified annuity. The principal has been taxed and will not be taxed again; only earnings are taxed. If you are unhappy with the performance of a non-qualified annuity, you have the right to transfer it to a new annuity through a tax-free transfer called a 1035 Exchange.

Things You'll Need

• Annuity statement
• Annuity contract

Instructions

1. Read the terms of your annuity contract. Establish the inception date on the information page. Use this date to determine if you have satisfied the "surrender period." The surrender period is a number of years you must hold the annuity to avoid paying any surrender fees for closing the annuity out. These fees are not taxes, but penalties for canceling the contract before the agreed time frame. Surrender fees are generally reduced as the years go on, being eliminated within five to seven years of annuity ownership.

2. Calculate any surrender fees for canceling the contract. This will be a percentage of the assets moved. For example, if you cancel an annuity with $100,000 in it, with a 4 percent surrender charge, you will pay $4,000 in fees to move the asset. If you feel the fees are worth the move, then proceed.

3. Find a new non-qualified annuity that meets your existing investment objectives. There are three types to choose from: fixed, fixed indexed or variable annuities. In each of these categories there are hundreds of annuity products. Use resources such as AnnuityFYI.com (see Resources) to compare specific annuities side by side.

4. Fill out a new annuity application with the new insurance company along with 1035 Exchange paperwork. Provide the new company with a copy of your statement and policy. The new insurance company will conduct the exchange for you.

5. Follow up with the new annuity company regarding the progress. You can expect a 1035 Exchange to take three to six weeks.

Tips & Warnings

• Do not liquidate the assets and then deposit them into a new annuity thinking it will work like an IRA rollover, where you have 60 days to re-fund an IRA. If you pull the assets out, you will create a taxable event.

References

• Immediate Annuities: Non-Qualified Annuity Tax Rules
• Annuity Advantage: What is a 1035 Exchange?

Resources

• AnnuityFYI: Compare Annuities