Exploiting the 1035 exchange rules
I haven't seen any discussion of this on the boards; my apologies if it has already been discussed elsewhere.
In the book "This is not your parents retirement" author Patrick Astre offers an unusual tax saving strategy that I might be able to use. I'm wondering if any of our experts has heard of or used it:
The IRS recognizes "1035" tax deferred exchanges that allow a person to move cash value and cost basis from one life insurance policy to another, or to an annuity (Hold the grenades - I know annuities are generally not good especially in low interest times.)
I have a 10-year level term policy that will expire in October 2014.
Total premiums paid (cost basis) = $5280.00
Cash value = $0.00 (it's a term policy)
So if I "exchange" my term policy for an immediate fixed annuity for $50000 I can add the $5280.00 for a total basis $55280.00.
This would allow me to shelter most all of the return - effectively making my old term policy premiums tax-deductible. The funding would be helpful to make our "bridge" to age 59.5
What do you think?