What is typically a requirement for a tax-free exchange of annuities under section 1035?

The requirement for a tax-free exchange of annuities under section 1035 is that the exchange must be for an equal value. This means that the new annuity must have a cash value that is at least equal to the cash value of the annuity being exchanged. This provision ensures that policyholders are not realizing a taxable gain at the time of the exchange. The intent behind this regulation is to facilitate a smooth transition for investors looking to move from one annuity to another without being subjected to immediate tax consequences, promoting flexibility in managing investment growth over time.

Other options do not meet the specific criteria outlined under section 1035. For instance, an exchange between two life insurance policies does not qualify as it limits the context to life insurance, whereas section 1035 specifically applies to annuities and certain life insurance products. Similarly, there is no requirement to complete the exchange within one year, as the timing of exchanges is not outlined in that way. Lastly, the exchange must be limited to eligible products, rather than being permissible with any financial product, which could lead to complications in how gains and losses are accounted for.