Multi Year Guaranteed Annuities (MYGA)

Highlights: Rates are Fixed and Guaranteed. Works like a CD, But you can set up to pay you Annually/Monthly.

Transferring from your 401k to an Annuity is a Non- Taxable Event. No income tax charged to convert 401k to Annuity.

Can use an annuity to help supplement  your income. Or just use it as a way to earn better interest than you get in savings or money market account.

There is no risk in an Annuity. Annuities are contractual agreements between you and the insurer for them to hold your money and pay a set rate. (Like a CD).

Unlike a CD, earnings for funds still inside the Annuity are tax-deferred. You only pay tax on funds received. (CD’s tax you for earnings even while still in the CD) 

2 Year – 3.5% +
3 Year- 4.1% +
4 Year- 4.15% +
5 Year – 4.5% +
6 Year – 4.52% +

Some of the key features and benefits of MYGAs contractually offer are listed below.

• No annual fees
• Contractually guaranteed annual interest rate
• Tax-deferred growth in non-IRA accounts
• Rates are typically higher than CDs
• Interest compounds tax-deferred in a non-IRA account
• Can be purchased inside of an IRA or non-IRA account
• Easy to understand
• No moving parts or market attachments
• Can be laddered like CDs and Bonds
• Full principal protection
• Can be transferred to another MYGA without tax consequences

Multi-Year Guarantee Annuities (MYGAs) are the annuity industry’s version of a CD (Certificate of Deposit). Both MYGAs and CDs allow you to contractually lock in a specific annual interest rate for a duration of time you choose at the time of application. MYGAs can be as short term as 2 years and you can lock them in for as long as 20 years. MYGAs have no annual fees, no moving parts, and provide full principal protection while guaranteeing an annual interest rate. If you are a current CD buyer, then you should also be a MYGA buyer.

The primary difference between a MYGA (i.e. annuity contract) and a CD is that in a non-IRA (i.e. non-qualified) account, the MYGA interest grows tax-deferred with no tax penalty on the interest earned. With CDs in a non-IRA account, you must pay taxes annually on that guaranteed interest rate that is credited. This tax-deferral benefit does not make MYGAs better than CDs, it is just the primary contractual difference between the two strategies. MYGAs can also be transferred from one MYGA to another in a non-IRA account, without creating any tax consequences. In other words, that annuity to annuity transfer would be a non-taxable event using the IRS approved 1035 exchange rule. MYGAs inside of an IRA can also be transferred via a non-taxable event as well. That would be an IRA to IRA transfer and would not trigger any taxes.

After the surrender charge period ends, you can also transfer a MYGA to another type of annuity as well. For example, you can transfer the full MYGA proceeds to a SPIA (Single Premium Immediate Annuity) if you need income to start now. Another example would be to transfer your MYGA to a DIA (Deferred Income Annuity) if you need income guarantees to start at a future date. In each case, the initial cost basis would transfer to the receiving annuity strategy…and that transfer would be a non-taxable event as well.

The other difference between MYGAs and CDs is the backing or insurance behind the product. MYGAs are fixed annuities that are issued by life insurance companies and regulated at the state level. Each state has its own State Guaranty Fund that backs MYGAs to a specific dollar amount. Each state has different coverage, so go to www.nolhga.com to check your specific state of residence coverage. CDs are FDIC insured. The Federal Deposit Insurance Corporation (FDIC) is superior coverage, in my opinion, when compared to State Guaranty Funds.

MYGAs and CDs can work well together to create a fixed rate ladder strategy. Historically, we have found that MYGAs provide higher rates than CDs if the contracted term is 3 years or more. For less than 3-year time periods, CDs typically provide the highest annual rates. With most MYGAs, you can choose to peel off the interest penalty-free. Peeling off the interest is not considered “partial withdrawals” because the principal is never touched. If you do decide to dip into the principal, there will be surrender charges during the specific locked-in period. This interest only strategy can be part of your retirement income plan, in combination with Social Security, pensions, etc.

MYGAs can be set up with one owner, or with joint ownership. Also, the listed beneficiaries on the policy can be changed by the owner(s) at any time as long as they are alive. In other words, your policy beneficiaries are revocable…not irrevocable. That is important if your beneficiary listings need to be changed or updated.

If you are a current CD buyer, then you need to consider adding MYGAs to your principal protected fixed-rate portfolio. 

FIXED INDEXED ANNUITIES (FIA’s)

These annuities allow your money to grow with the stock market but without any risk of losing money. They don’t have a fixed guaranteed rate of growth like the MYGA’s above, but if the stock market does well, they allow you to potentially make more money than the MYGA rates. 

A popular element of Fixed Indexed Annuities is the Income Rider that many people use as a way to create a pension for themselves. The Income Rider allows you to begin receiving monthly or annual income from your annuity that you can use however  you like. There are different ways to set these up depending on your wishes. Reach out for more specifics based on your situation.