What is a 1035 exchange and when is it used?

• A. A taxable transfer of funds from one annuity (or life policy) to another; allows replacement without current tax consequences but may trigger surrender charges and new costs.
• B. A tax-free transfer of funds from one annuity (or life policy) to another; allows replacement without current tax consequences but may trigger surrender charges and new costs.
• C. A tax-free transfer of funds from one annuity (or life policy) to another; allows replacement without current tax consequences but may trigger surrender charges and new costs.
• D. A withdrawal that is taxed as ordinary income.

Answer: (C)