Can You 1035 Exchange From Annuity To Life Insurance? - YouTube

The best way to get tax-free income. In this episode, we are going to address the

question "Can you 1035 exchange from annuity to life insurance?" Get ready to

learn the do's and the don'ts what you can and can't do because you must do

1035 exchanges to like instruments. So what is they like instrument and you

want to make sure you improve the tax scenario, not make it worse.

So, my name is Doug Andrew. I've been a financial strategist for north of 46

years. And helping many many people optimize their assets, minimize taxes and

empower their authentic wealth. But especially from a financial standpoint,

to help them not outlive their money in retirement. One of my favorite vehicles

for providing the most predictable tax free cash flow or income at between 7 to

10 percent payouts. What does that mean? That every million dollars that you

accumulate can generate 70, 80, 90, usually up to 100 thousand

dollars a year of tax-free income for as long as you live. If you retired age

65, it would keep going if you live to be 120. It's

what I affectionately call the Laser Fund which is an indexed universal life

insurance contract that is maximum funded under IRS guidelines. So, many

times people will come to my educational event so they'll say, "Is this an annuity?"

No. An annuity simply put is a savings account with an insurance company. Many

different pension plans use annuities with insurance companies because the

multi trillion-dollar legal reserve insurance industry is not only the

backbone of America but the backbone of the world. It's off times where

governments go to for help. One of the insurance companies where I put a lot of

my money manages 3 trillion dollars that's as much as the IRS collects and

income taxes in an entire year. One insurance company, okay? So they've come

through the Great Depression with flying colors. There's not one single legal

reserve insurance company that went under in the Great Depression. In 2008,

when 400 banks went under and 900 more Rhonda brink the watchlist. During that

time, there was not one single legal reserve insurance company that went

under. If during a critical time period, they go temporarily insolvent because we

run on the bank they still honor all of their claims because the insurance

industry cross ensures each other. So, many people choose to put

money into an insurance company because of the safety, okay? It's the last

industry that would go if the entire American economy went to heck in a hand

basket. You would have so much warning, the banks would be failing, real estate

would drop 80% like the Great Depression. And you would have plenty of time to get

your money out. But think about it if it's that bad and you got your money,

where would you put it? See the American dollar would be worthless so it wouldn't

matter if you had your money if it got that bad. So, I put my money in the last

thing that would go before I would be forced to just live it live on that

carrots I grew in my backyard. Now, with an insurance company, there are 2

general products offered by most insurance companies that help people

accumulate their money for retirement and so forth. One is an annuity. Annuities

accumulate your money tax deferred, not tax-free. It's sort of like an IRA or

401K. You don't even have to have an annuity that's an IRA or 401k. You could

fund it with after-tax dollars but it's only tax deferred. If you put $500,000

into an annuity... And let's say it's earning 10% which most are not earning.

But let's say you had one that did. 10% on 500,000 would be $50,000 a year of

income. That would be 100% taxable income because the last money you're earning,

the interest is the first money coming out. That's what LIFO means. :ast

in first out. That's why I've never owned an annuity. I doubt I ever will.

Why would I own an annuity when I can earn a higher rate of return in a

maximum funded insurance contract? And people say, "What?" Well, an insurance policy,

you're paying for life insurance that's their more expensive. Not if you

structure it correctly, they actually outperform annuities. So, when people

learn this, they realize that the insurance policy, if its maximum-funded,

it accumulates your money not just tax deferred, it can be totally tax-free. So,

that when you put money in there and if it's earning 7 to 10 percent, a

year average. Like I've averaged your money will double every 7 to 10

years. Because 7.2%, your money doubles every 10 years. If you're earning 10

percent, it doubles every 7.2 years. And when I finally have a nest egg,

let's save a million bucks, the life insurance if it's indexed

universal life, I have averaged a little over 11% for the last 26-27 years

netting 10% after the cost of the insurance. So, it's actually pretty

inexpensive. I earn 11 and net 10. But that 10% is tax-free. Meaning, a

million-dollar nest egg can generate $100,000 a year of tax-free income where

an annuity may only give you maybe 5 or 6 percent payout. If they gave you a

10% payout, it's not tax free. So, the first question I get asked is, "Well

can you exchange an annuity for life insurance under Section 1035 of the

Internal Revenue Code?" The answer is next. So, the short answer

is no. Because they are not like instruments. One is an annuity which is

like a savings account with an insurance company where your money accumulates tax-deferred.

And when you take it out, it's now taxable LIFO. Life insurance

does not do that. Life insurance is totally tax-free as it grows. And when

you take it out, if you do it the smart way, is totally tax-free. So, you cannot do

a 1035 exchange from an annuity to life insurance nor would you want to. Now,

what's interesting, you can do the opposite. But I would never do that.

You could exchange a life insurance policy for an annuity and you can do

what is called a 1035 exchange. Now, section 1035 of the Internal Revenue

Code simply says that you can exchange one financial instrument from an

insurance company, okay? If it's life insurance for a like instrument another

life insurance policy. You could go from whole life to universal life. You could

go from variable whole life to variable Universal Life or indexed universal life

or whatever. But those are all life insurance policies. You cannot take money

out of an annuity and put it into life insurance because you're going from tax-

deferred into tax-free. And the IRS will not let you do that. But they'll let you

do the opposite. If you're dumb enough to take money that is tax-free out of an

insurance policy and do a 1035 into an annuity, you're going to trigger a tax

consequence instantly because now you're going over to an annuity and you have to

pay tax on on the gain that you had over and above your basis in the insurance

policy that was tax-free. And you just buggered that up. So, that would be a

stupid thing to do. But the IRS will let you do that one. But they will not let

you go from tax-deferred to tax-free in an insurance contract. So, what is the

best way to get the money out of an annuity and over to a better instrument

like a maximum funded tax-free insurance contract? So, you do not want to move

money directly from an annuity even if they let you and to go into the

insurance contract. Because you would ruin the tax-free nature of the

insurance because it did not come from a like investment. So, the better thing to

do and we've had many many people who would come to us with an annuity and

they were dissatisfied. Now, you always use caution. If you're going to do any

kind of an exchange, you want to analyze with an enforced illustration --what is

this annuity likely going to do in the future? And an insurance company will

give you an in force illustration showing based on current interest rates

and so forth what it will likely provide. But you really ought to ask yourself why

did you take out the annuity in the first place if it was to grow your money

safely at a nominal rate of return and then have taxable income has that

objective changed? Most of the time people say, "Well, yeah. When I learned that

a maximum funded insurance contract can outperform an annuity and it's tax-free,

I get a higher rate of return it's tax-free. And when I ultimately die,

if I have a million in there, blossoms to

2 million when I die. And annuity doesn't do that." Yep. And so, a properly

structured maximum-funded insurance policy can knock the socks off of an

annuity. But what you do is you simply look at the annuity and make sure that

you're not going to be clobbered with surrender charges if it's in the early

years of the annuity. Now, you don't want to wait until all surrender charges are

way. Because in an annuity, they usually go down, down, down to longer you've had

them the more years that you've owned it. But at a certain point in time, you will

make up for the surrender charge. At that point, you take the money out of the

annuity even if there's a small surrender charge. You take that money and

then you fund the insurance contract in accordance with Tefra Defra and Tamra

guidelines. Those are tax citations that make sure your money not only grows

tax-free but allows you to take it out tax-free down the road. I have other

episodes that talk about Tefra, Defra and Tamra if you type in those

questions, you'll see those a YouTube educational videos about those tax

citations. You take the money out of the annuity when it's the proper time. You

get it strategically put into the insurance contract and now, you've

improved your situation. If it's structured right, you will now accumulate

your money not just tax-deferred, it will be totally tax-free. But most importantly,

you'll have a higher rate of return if you use indexed universal life whereas

an indexed annuity generally does not have as high of rate of returns as

indexed universal life. The best indexed annuities usually illustrate between

maybe 6, 7, 8 percent at the best. My universal life insurance

contracts have performed at 10-11 and some years as high as 25% with

multipliers as high as 55%. You don't have indexed annuities

that do that. And so, you want to preserve the tax-free access, when you take money

out of an annuity, you want to improve your situation for a different goal. You

want the highest net spendable income and you want to grandfather yourself

under the Tamra tax citation to generate on a million bucks $100,000

a year of tax-free income without depleting principle which will

knock the socks off of a million dollars in a traditional annuity even an indexed

annuity, even with the same insurance company. And a lot of people even

insurance agents do not understand that. So, many times in my career, people have

said, "Wow! That sounds too good to be true. How can I learn about this?" This is what

motivated me to write my very first book which became a best-seller. And then

several other best-selling books, one became a New York Times, The Wall Street

Journal number 1 bestseller. But my 11th book is titled The Laser Fund. And

it's actually 2 books in one. This side is 200 pages, 14 chapters with all

kinds of charts and graphs of how the Laser Fund which is a max-funded indexed

universal life insurance contract. The laser fund means liquid asset safely

earning returns. That spells the acronym laser. And so, this is how to diversify

and create the foundation for a tax-free retirement where annuities don't do that.

If you learn by stories, you flip the book over and this site has 12 chapters

with 62 actual clients stories. I would love to gift you free a copy of this

book. I'll show you how you can get it if you go to laserfund.com. You simply pay

$5.95 shipping and handling. I'll pay for the book. You pay for the

shipping. I'll fire one out to you. You'll also have options if you like to listen

and learn or watch and learn with audio and video formats also.