Yes, you and your clients can exchange one variable annuity contract for another. But should you?
The Financial Industry Regulatory Authority recently warned investors about making such a move, urging them to be aware that replacing one VA with another involves “a comparison of the complex features of each security.”
FINRA, as well as advisors polled by ThinkAdvisor, stress that there are good reasons to consider an exchange — as well as situations when an exchange is generally not a good idea.
The Internal Revenue Service allows clients to exchange one VA contract for a new one without paying tax on the income and investment gains earned on the original contract through a 1035 exchange, FINRA notes, which “can be a substantial benefit — and is often used as a selling point.” However, this tax benefit comes with “some important strings attached,” as FINRA notes in a recent investor alert.
Read the gallery above for advisors’ advice on when it may be a good idea to make the switch — and when it’s probably best to stay put.
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