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NEW QUESTION: 1
Which of the following statements about 1035 exchanges are true?
I. A 1035 exchange refers to the exchange of all of the shares owned in one mutual fund for shares of another mutual fund in the same family of funds.
II. A 1035 exchange refers to the exchange of one variable annuity contract for another variable annuity contract without the need to pay tax on any of the income or capital appreciation associated with the original contract.
III. A 1035 exchange refers to the exchange of a variable annuity contract for a whole life insurance policy offered by the same company with no tax consequences to the transaction.
A. I only
B. I and II only
C. I, II, and III
D. II only
Answer: D
Explanation:
Explanation/Reference:
Explanation: Only Selection II is true regarding 1035 exchanges. A 1035 exchange refers to the exchange of one variable annuity contract for another variable annuity contract without the need to pay tax on any of the income or capital appreciation associated with the original contract. This does not refer to the exchange of one mutual fund for another, which is a taxable event; nor does the 1035 exchange involve exchanging a variable annuity for a life insurance policy.


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