Multi-Year Guaranteed Annuities

Multi-Year Guaranteed Annuities offers a fixed interest rate for a period of 2, 3, 4, 5, 6, 7, 8, 9, or 10 years.  The premise of a MYGA is you put your money in, let it sit for the prescribed period, and receive back your principal plus the guaranteed interest rate.  When MYGAs come within 30 days of maturing, you are given the option to let them renew, at the then current interest rate offered by the insurance company, which may be different than the one you originally agreed to. Or you may withdraw your money.

A withdrawal can happen two ways.  You can close the account and receive the money, which becomes a taxable event.  Or you can transfer the account to a like account and delay taxation.  If the money is “qualified,” meaning in a retirement account such as an IRA, then you simply transfer the IRA to another IRA.  If the money is “non-qualified,” such as an individual or joint tenant account, then you simply do a direct transfer to another annuity. This is called a “1035 exchange.”

A feature of non-qualified MYGAs (individual, joint tenant, trust accounts, etc…) is that they grow tax-deferred like IRAs. And you do not have the contribution limits that come with IRAs.

MYGAs have a penalty for making early withdrawals. This is called a surrender charge. Most MYGAs come with one “free withdrawal” per year included, of a pre-specified amount. You only pay a surrender charge on the amount that exceeds the free withdrawal, which may also be subject to an additional fee called a Market Value Adjustment (MVA). Most MYGAs waive all surrender charges in the event of terminal illness of the owner, or if the owner needs to go into a nursing home.  You never forfeit interest earned in a MYGA just because you make an early withdrawal.

MYGAs can also be annuitized, depending on the age of the owner, and turned into a lifetime income stream.

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Disclosure: The content on this web page is not intended to be a recommendation to purchase an annuity. A 10% IRS penalty may apply to withdrawals prior to age 59 1/2. Surrender charges may apply to withdrawals during the surrender period. The information in this material is not intended as tax or legal advice. Individuals should consult with their tax or legal professionals for specific information regarding their situations. All annuity guarantees are subject to the claims paying ability and principal strength of the annuity issuer.