IRS eases rules on tax-deferred swaps of part of annuity.(ANNUITIES)

Kiplinger Tax Letter, The, March, 2008

IRS eases the rules on tax-deferred swaps of part of an annuity.

Only payouts within a year after a partial swap are hit, IRS says. The Service had considered a two-year wait for tax-favored withdrawals. Distributions made from either the new or the old annuity are treated as coming first from earnings and then as a tax-free return of capital. Part of the basis in the original annuity is allocated to the new one. This creates opportunities for tax-sheltered payouts from either annuity if the cash surrender value is much higher than the original investment. For the complete details on all the requirements, see Rev. Proc. 2008-24.