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Discussion Forum Index --> Basic Tax Questions --> 1035 Exchange-Life to Annuity
Discussion Forum Index --> Tax Questions --> 1035 Exchange-Life to Annuity
Scottb (talk|edits) said:
| 28 April 2008
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| Is the basis in a 1035 exchange to an annuity the cost of premiums (say $50,000) or the cash value (say $10,000)?
Thanks
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JR1 (talk|edits) said:
| April 28, 2008
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| I thought it was cash value...the insurance company will issue the paperwork. Ask them.
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JR1 (talk|edits) said:
| April 28, 2008
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| Oh, basis. Sorry, read and answered too fast. Why do an exchange in that case?
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Scottb (talk|edits) said:
| 28 April 2008
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| The insurance company says it is the premiums paid (in this case). As to why, the client doesn't need the life insurance. While he can cash in the policy and take the cash out tax free, There is no tax benefit for all those preimiums paid. If basis is premium, he can shelter $40,000 in future growth in the annuity over time. For example, if he goes into an annuity (via 1035 exchange) and adds another $40,000 he will have $50,000 invested with a basis of $90,000. In time he should earn another $40,000 and take it all out tax free--if the insurance company is right.
Why wouldn't this work?
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