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A direct transfer is a method of moving qualified funds from one trustee to another without triggering a taxable event. Transfers often occur between two financial institutions but they can also be between contracts or accounts at the same institution. To qualify as a transfer:

• It must be between “like-kind” plans (e.g. Traditional IRA to Traditional IRA, TSA (Tax Shelter Annuity) to TSA

• There must be no constructive receipt of the funds. In other words, the check must be payable and directed to the receiving financial institution as trustee

A direct rollover is a method of rolling certain distributions from a qualified retirement plan or TSA to another kind of qualified retirement plan (e.g. TSA to a Traditional IRA, 401(k) to a Traditional IRA). To qualify as a direct rollover:

• The funds distributed must be an “eligible rollover distribution” which can generally be described as a distribution received upon a qualifying event such as retirement, termination of employment, attainment of age 59½, or disability. Regulations specify certain items that are not considered eligible rollover distributions (e.g. required minimum distributions)
• The receiving qualified retirement plan must allow rollovers from other parties
• The funds must be transferred directly from one financial institution to another for your client’s benefit. In other words, the check must be payable and sent to the receiving financial institution as trustee

A 1035 exchange is the exchange of an insurance contract for another that meets all the requirements of Section 1035 of the Internal Revenue Code (IRC 1035). When a contract is exchanged under IRC 1035, the gain or loss of the exchanged contract is transferred to the new contract. Requirements for non-taxable treatment include:

• The owner and the insured/annuitant on both contracts must be identical
• The contract being exchanged must be in force. If the contract is maturing, the 1035 exchange must be signed prior to the maturity date

To annuitize is to convert the accumulated value of an annuity into a stream of income. The payments may be a fixed amount for a fixed period of time or for a lifetime.