What is MYGA (Multi-Year Guaranteed Annuity)? MYGA, or multi-year guaranteed annuity, is a type of fixed annuity that guarantees a fixed interest rate for a specified period, typically between three and ten years. A MYGA is suitable for someone approaching retirement who prefers tax deferral and investment return certainty. Purchasing a MYGA is one strategy for supplementing investment accounts and Social Security benefits in retirement.
How Do MYGAs Works? With a MYGA, you pay a premium to an insurance provider. In return, the provider agrees to pay you a fixed interest rate on your contribution for a specified period. The term can be three, five, or ten years. MYGA works by tying up a lump sum of money to earn interest. Suppose you must withdraw funds from an annuity before the accumulation period expires. In that case, you might be required to pay surrender fees. Depending on the annuity company, your contract may permit you to withdraw partially before the surrender period ends without incurring costs. You can receive the premium and interest earned at the end of the accumulation period, or you may be able to renew the contract. The interest rate you initially agreed upon may change if you continue the contract. Another possibility is to move the funds to a different type of annuity. You can do this without paying a tax penalty using a 1035 exchange.
Advantages of MYGA • Security – MYGAs are not affected by market volatility. • Flexibility – Many providers allow for yearly partial withdrawals without penalty. • Tax Advantages – You don’t pay taxes until you withdraw money.
MYGA rates vary by carrier and change daily. In general, MYGA rates are higher than CD rates and compound annually. Rates may be higher in a contract with more restrictive withdrawal provisions. MYGAs are subject to surrender charges, which means that annuity holders may be required to pay fees if they withdraw money from an annuity before the term expires. Many annuity providers offer penalty-free withdrawal provisions, which allow you to withdraw a portion of the money from an annuity before the surrender period expires without paying fees. Some contracts, for example, permit withdrawals of up to 10% beginning in the first year.
Taxes MYGA provides tax deferral on interest that is compounded annually. Because the tax is only levied when the money is taken out, this can exponentially increase wealth. It’s similar to contributing to an IRA or 401(k), but without the contribution limits. The tax rules differ slightly depending on the funds used to purchase the annuity. When you withdraw money from a MYGA purchased with qualified funds, such as an IRA or other tax-advantaged account, you pay income tax on the principal and interest. If you buy a MYGA with nonqualified funds, you only pay taxes on the interest.
Contact Information:
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Phone: 3037587400
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