1035 exchange from annuity to LTC

Submitted by Robert Vashko on Wed, 2020-02-12 12:55

Sorry, I know this is an IRA forum, but a lot of folks here seem to knowledgable in the non-qualified annuity and LTC space as well, and I could use a concurring opinion on an issue:

HIPAA created the tax-qualified (i.e. tax-free) status of LTC products meeting certain criteria.

Pension Protection Act of 2006 allowed the tax-free exchange of annuities into LTC products or annuity-LTC hybrid products via Sec. 1035.

PPA’s §844 (g)(1) discusses “Effective Dates” as being for “contracts issued after December 31st, 1996.” That date applies (in a 1035 exchange) to the receiving contract – i.e. the LTC product given tax-qualified status under 1996’s HIPAA, correct?

To put it another way, there is no requirement that the losing contract (i.e., the original plain-Jane NQ annuity) has to have been issued after 12/31/96, right?



Submitted by Alan - IRA critic on Wed, 2020-02-12 15:39

  • Copied below is the intro to Notice 2011-68. It appears that the annuity must have been issued after 12/31/1996.
  • Part III. Administrative, Procedural, and MiscellaneousNotice 2011-68Annuity and Life Insurance Contracts with a Long-Term Care Insurance FeatureSECTION 1. PURPOSEThis notice relates to amendments made to §§ 72, 1035, and 7702B of the Internal Revenue Code by the Pension Protection Act of 2006, P.L. 109-280 (the “PPA”). These amendments affect qualified long-term care insurance, annuity, and life insurance contracts issued after December 31, 1996, but only with respect to taxable years beginning after December 31, 2009, and tax-free exchanges occurring after December 31, 2009. This notice provides interim guidance on the application of these amendments in certain circumstances, and requests comments on certain other issues to be addressed in future guidance concerning the taxation of annuity and life insurance contracts with a long-term care insurance feature.


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