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Multi-Year Guaranteed Annuities

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Overview of MYGA - CD Annuities:


  • A Multi-Year Guaranteed Annuities (MYGA) is a hybrid of a fixed annuity and a CD (Certificate of Deposit). The MYGA guarantees a fixed rate of return for the entire duration of the contract's terms.


  • You give a specific amount of money to an insurance company, and the insurer guarantees that your investment will earn a specific rate of compound interest for anywhere from 3 to 10 years.


  • Rates vary depending on the insurance company, national interest rates the chosen contract term and withdrawal options.


  • MYG annuities are often called CD-type annuities or tax-deferred CDs because they serve the same purpose as a certificate of deposit (a CD is a security purchased at a bank that pays a fixed rate of interest for a specific number of months or years).


Some of MYGA’s Key Features

  • MYGAs offer deferred guaranteed growth.
  • There are options for duration of the growth period of a MYGA.
  • Qualified and non-qualified money can be used to purchase a MYGA
  • MYGAs have no ongoing fees.
  • A simple plan for future growth can contain a MYGA without becoming overly complex.
  • You or a beneficiary will receive contractually guaranteed payments. 
  • MYGAs can provide a guaranteed death benefit to your spouse or other beneficiary.


A MYGA (Multi Year Guarantee Annuity) is used primarily to grow retirement funds for a certain period of time at a guaranteed interest rate.


MYGAs are often called tax-deferred CD’s because like CD’s they lock interest rates, but differ because the funds grow on a tax-deferred basis.


When considering a MYGA your goal should be to fully protect your principal for a specified number of years, and to receive a guaranteed interest rate with tax-deferred benefits for your non-IRA account.


You can also purchase a MYGA within a Traditional IRA or Roth IRA, but specific IRA taxation rules will apply.


When the time period of your contract comes to an end you will have the option to convert your annuity to another annuity, such as another MYGA, to continue to defer taxes for another specific time period. You may also choose to convert your MYGA to an income annuity such as a SPIA (Single Premium Immediate Annuity)or deferred annuity.


A MYGA (Multi Year Guarantee Annuity) is used primarily to grow retirement funds for a certain period of time at a guaranteed interest rate.


MYGAs are often called tax-deferred CD’s because like CD’s they lock interest rates, but differ because the funds grow on a tax-deferred basis.



What are the Tax Benefits? If you use non-IRA money for your MYGA the annual interest you receive will grow and compound taxdeferred. In other words, you will NOT pay taxes annually on this money. At the end of your contract you can continue the tax-deferral strategy by converting your MYGA to another annuity. You will eventually pay taxes when you pull the money out of your MYGA in a non-IRA account if you choose not to convert to another annuity. The funds will be taxed using the LIFO (Last In First Out) method. In other words, interest or gains first, and all LIFO distributions will be taxed at ordinary income levels. MYGA’s can be purchased inside of a Traditional IRA, but IRA taxation rules apply. MYGAs purchased inside a Roth IRA will have a tax free distribution like all other Roth assets.


Will My Interest Really Compound? Yes, and it will compound tax-deferred inside a non-IRA account. This is how a MYGA can outperform a Certificate of Deposit (CD).


Why Would I Buy a MYGA Instead of a CD? The primary reason is the tax benefit of a non-IRA MYGA as described above. A CD does not have this benefit as the interest earned on a CD is reported annually and you will pay taxes on it annually. Both MYGAs and CDs are in the fixed rate family and pretty much work the same way with a contractually guaranteed annual interest rate for a specified period of time. Both have surrender charges if you take the money out early, and both have no annual fees. As a general rule of thumb concerning whether to buy a CD or a MYGA look at the amount of time you want to lock in the interest rate and your money. If you will need the money within 2 years, then a CD makes sense, but if you don’t need the money for 3 or more years you may want to consider a MYGA because you will most likely get a better rate than a CD.


What is the Interest Rate of a MYGA? The fixed interest rate will depend on the insurance company issuing the MYGA as it will declare the interest rate just like a bank declares its CD interest rate. When determining the going interest rate the insurance company depends on the volatility of the U.S. Treasury Note, and the competitive nature of the current annuity industry environment. MYGAs are often referred to as Fixed Rate Annuities which makes sense as the interest rate at the beginning of your policy will be the same at the end. If you choose to purchase another MYGA at the end of your contract, you will be locked into another interest rate, most likely higher or lower dependent upon the interest rate environment.


What are the available contract lenghts of a MYGA? Presently, the interest rate environment is low, so the least number of years you can own a MYGA contract is 3, but when interest rates rise again this may change to 1 – 2 year terms. MYGAs can be locked in for longer terms of 10 years or more, but you need to be careful and properly analyze if locking in at an interest rate for that long of a period of time is right for you.


Are There Be Surrender Penalties? Yes, you will be penalized as with most contracts that have surrender charges. The surrender charges during the contract period of a MYGA are high, so make sure you will not need to access these funds during the contractual period. It’s important to know what specific surrender penalties are for the MYGA you are considering. Some MYGAs have an MVA (Market Value Adjustment) clause imbedded in the contract that will affect the surrender charge. Simply, if you purchased your MYGA at a higher interest rate than at the time you want to surrender it, the net surrender charge penalty can be less. Please note that most MYGA contracts do not have an MVA clause, but you should read your contract carefully to know if this clause is in your contract and could affect you down the road.


Is There Any Liquidity in a MYGA? Most MYGAs allow you to take some money out without penalty. But, insurance companies, who contract MYGAs, differ in what they allow or not allow withdrawn during the contract duration. Some will allow you to withdraw 10% annually without a penalty, others will allow interest only without penalty, and others don’t allow any withdrawals during the first year of the contract. Do your homework on the specific MYGA policy you choose and match your liquidity needs with the rules of that contract.


Is There an Annual Fee? No. Your principle is never used for fees or commissions. MYGA commissions to the agent are typically low, built into the policy, and paid fby the insurance company's reserves. The commission is usually from 1% to 3% dependent on the contract.


What Happens If I Die? Most MYGAs offer the accumulation value at the time of your passing as a death benefit. Make sure you understand how the death benefit is contractually calculated. Most companies will waive the surrender penalty at death, but there are a few companies that do not. The listed beneficiaries on your MYGA policy will receive a lump sum when you pass away. Policies can be structured for your beneficiaries to receive payments over a period of years. You choose what is best for your beneficiaries, and note that you can change the beneficiaries any time during your life if your circumstances change.


What Are MYGA Guarantees? You are contractually guaranteed an interest rate for a certain period of time with compounding tax deferred interest in non-IRA accounts. You are guaranteed your money back during the free look period, typically ranging from 10-30 days upon receipt of your contract. Read your contract carefully and contact the carrier with any questions during this time. MYGAs are regulated at the state level, and each state has their own specific level of annuity coverage if the carrier goes under. It’s called The State Guaranty Fund and covers annuity premiums to a certain limit. Each state is different. You can go to the National Organization of Life and Health Insurance Guaranty Association website at www.nolhga.com to find out your specific state’s coverage. It’s important to remember that annuity guarantees are only as good as the carrier backing them up, so do your homework.



No annual fees

• Contractually guaranteed annual interest rate

• Rates typically higher than CDs

• Interest compounds tax deferred in a non-IRA account

• Can be purchased inside of an IRA or non-IRA

• Low commissions paid by insurance company

• Easy to understand with no moving parts

• Laddering allowed Limitations

• High surrender charges

• Limited liquidity

• Shortest term MYGA is now 3 years

• Guarantees only backed by issuing carrier

• Money taken out is taxed LIFO at ordinary income levels


3 RULES for Deciding if a MYGA may be Right for You


RULE ONE – Your primary objective is to have a fixed interest rate for a specific number of years during which you will grow your money. The interest rate depends on the carrier and the interest rate environment.


RULE TWO – You want to own a MYGA for a minimum of 3 years before you either need the money or you choose to roll it over into another annuity to continue to defer taxes.


RULE THREE – You want future income but have not decided whether you want a single or joint Deferred Income Annuity. If you’re married, you'll probably want to speak with your spouse regarding your plans for your future income needs.

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