1035 Transfer

[smooch]

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.

 

[JPatrick]

Definition::
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 irs.gov would give you all (and more) that you would ever want to know.

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