Annuities✓ Verified · outline & fact-checked · Sep 2026Difficulty 3/5
Which statement about Section 1035 exchanges and qualified plans is correct?
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Section 1035 governs tax-free exchanges of nonqualified contracts, meaning individually owned life insurance policies and annuities. Assets inside qualified plans, IRAs, and 403(b) arrangements are moved under the rollover and trustee-to-trustee transfer rules of the Internal Revenue Code, not under Section 1035. Confusing the two regimes can create an inadvertent taxable distribution.
Why the other options are wrong
- B) Qualified plan transfers are governed by rollover provisions, not by Section 1035.
- C) Qualified plan transfers remain subject to the usual rollover restrictions and time limits.
- D) Section 1035 does not apply to qualified plan annuities; it addresses nonqualified exchanges.
Memory hook
1035 = the nonqualified lane; rollover rules = the qualified lane. Different highways, do not switch lanes.