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1035 Transfer
Old 02-19-2006, 04:52 PM   #1
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1035 Transfer

I am in the process of moving our assets to Vanguard from Merrill Lynch. My husband and I each have a variable annuity with after tax money at ML. His is for $22k and mine if for $49k. He's had his for 11 years, but the Surrender value" is less than the value. Will ML charge a surrender fee after 11 years?

If I move these two annuities to a VG annuity, does that mean that I will have to pay surrender fees at ML - I've only had mine for 2 years. I can't find anything on the ML site about the fees actually charged for these annuities and I'd rather not ask our FA. Can someone give me an explanation of a 1035 exchange?

Thanks so much for all the information I have gained here.

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Re: 1035 Transfer
Old 02-19-2006, 05:56 PM   #2
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Re: 1035 Transfer

The IRS allows the direct exchange of an existing annuity for a new contract free of any taxes on the income and investment gains in your current annuity. This means you can exchange your current annuity to Vanguard tax-free.

A tax-free 1035 exchange can be used to exchange:

A variable annuity for another variable annuity.
A variable annuity, previously funded with qualified money, for a fixed annuity to protect the value of your retirement savings for a shorter time period (3-10 years).
A tax-deferred annuity to purchase an income annuity, when you are ready to take income in retirement.

About those surrender charges:
You should check this with Vanguard, but I'm fairly certain you will pay any and all surrender charges.* After deducting the charges and any losses you may have, your new basis is established (for the new annuity)

I would guess that a "1035 exchange" search at would give you all (and more) that you would ever want to know. :P

One other thing, the transfer process can be painfully slow if that matters to you.
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