L&HNJmedium
An NJ client exchanges one non-qualified deferred annuity for another under IRC Section 1035. For purposes of NJ's annuity rules, this transaction is treated as:
AA new sale, not subject to replacement disclosure
A replacement requiring suitability/best-interest analysis and replacement disclosure
CExempt because no taxable event occurs under federal law, so no NJ disclosure is required
DExempt because the client initiated it, so no suitability review is required
Why this is the answer
Although IRC Section 1035 grants federal tax deferral, NJ's replacement regulation (N.J.A.C. 11:4-2) and the best-interest annuity rule (N.J.A.C. 11:4-59) treat any transaction in which an existing annuity is surrendered, lapsed, reduced, borrowed against, or used to fund a new annuity as a replacement requiring full disclosure and a documented best-interest analysis.
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