518 / What is the effect of a tax-free exchange on the tax treatment of amounts received under annuity contracts before the annuity starting date?

To give effect to the grandfathering of pre-August 14, 1982 annuities, a replacement contract obtained in a tax–free exchange of annuity contracts ( Q 570) succeeds to the status of the surrendered contract for purposes of determining when amounts are to be considered invested and for computing the taxability of any withdrawals.¹ Investment in the replacement contract is considered made on, before, or after August 13, 1982 to the same extent the investment was made on, before, or after August 13, 1982 in the replaced contract.

.      Rev. Rul. 85-159, 1985-2 CB 29.