Multi-Year Guaranteed Annuity: How to Choose a MYGA

Shawn Plummer

CEO, The Annuity Expert

A multi-year guaranteed annuity is a type of investment that guarantees the individual an annual return for a set number of years. This can be very beneficial because it offers stability and protection against inflation, which has been steadily increasing over the last few decades. For this guide, we will discuss what you need to know about choosing a multi-year guaranteed rate annuity, including:

What are the benefits? What kind of returns should I expect? Who qualifies for these investments? How do I choose between different types of annuities?

What is a Multi-Year Guaranteed Annuity (MYGA)?

A multi-year guaranteed annuity, or MYGA, is a specific type of fixed annuity that provides a guaranteed fixed interest rate for two to ten years. A MYGA is best suited for someone who is approaching retirement and wants tax deferral and a guarantee of investment return.

Buying a MYGA is one way to supplement investment accounts and Social Security payments in retirement by earning a guaranteed interest rate. You won’t owe taxes on the growth until you start taking payments.

They are also known as CD annuities since they provide some of the features of certificates of deposit, such as a specified term and a guaranteed fixed interest rate.

How Do MYGAs Work?

In a MYGA, you agree to pay an insurance company a premium in return for a guaranteed fixed interest rate on the contribution for a certain length of time. The term can be two years, three years, five years, ten years, or any number of years up to twenty years.

You will either be able to cash out the premium and interest you’ve earned or extend your contract at the conclusion of the accumulation period. If you decide to renew your contract, the interest rate may differ from the one you originally agreed to.

Another alternative is to move the money into a different type of annuity like a fixed index annuity. A 1035 exchange allows you to do so without incurring a tax penalty.

Withdrawal Provisions

If you want to withdraw money from the annuity, you may have to pay fees called surrender charges. Your contract might let you take some of the money out without paying fees each year called penalty-free withdrawals. Ask the insurance company about this when you get the annuity.

Your contract may also allow you to take money out for emergencies. For example, if you need money to enter a nursing home, you may be able to take it out of your MYGA.

Before withdrawing funds from a multi-year guarantee annuity early, keep in mind that one of the primary advantages of a MYGA is that they are tax-deferred. The money withdrawn won’t earn triple compounding interest that accumulates over time.

Multi-Year Guaranteed Annuity (MYGA) Rates

MYGA rates vary slightly from carrier to carrier and change daily. In June 2019, the best rate for a MYGAs with a 10-year surrender period was 4.30 percent, and the best rate for a MYGA with a seven-year surrender period was 4.19 percent. The best rates were 4.10 percent and 3.0 percent for MYGAs with five-year and three-year surrender periods, respectively.

MYGA rates are usually higher than CD rates, and they also compound each year. A contract with more limiting withdrawal provisions may have higher rates.

How Are MYGAsTaxes

The MYGA allows you to defer taxes on interest and compound it each year. Because the tax only occurs when you withdraw the funds, this may lead to a huge increase in wealth. It’s similar to investing in an IRA or a 401(k) but without restrictions.

The tax rules change depending on the type of funding in an MYGA annuity. Both the principal and interest will be taxed when income is withdrawn from a qualified annuity (IRA Annuity). Only the interest earned is taxed when income is withdrawn from a nonqualified MYGA.

Multi-Year Guaranteed Annuities vs. Traditional Fixed Annuities

MYGAs are a type of fixed annuity. MYGAs guarantee the same interest rate for the entire duration of the contract. Traditional fixed annuities guarantee the interest rate only for a portion of the term of the contract then offer a different rate later on.

MYGAs vs. CDs

Both MYGAs and CDs provide a guaranteed return with a guarantee on the principal. CDs and MYGAs are safer than equities like Vanguard, but the rate of return is lower.

Who OffersInsurance CompanyBanks
Premium Amounts$2,500 to $1 Million$500 – No Maximum
Terms2 Years to 20 Years3 Months to 7 Years
Guaranteed Interest RatesUp to 3.25%Up to 1.25%
Triple CompoundingYesNo
Principal ProtectionYesYes
Can Lose Money?NoNo
Liquid After Term100%100%
How Are Gains Taxed?Tax-DeferredTaxed Annually
Annual LiquidityUp to 10% AnnuallyNo Liquidity
Who Protects My Money?Insurance Company/SGAFDIC
Accepts IRAYesNo
Accepts 401(k)YesNo
Death BenefitLump-SumLump-Sum

Shawn Plummer

CEO, The Annuity Expert

I’m a licensed financial professional focusing on annuities and insurance for more than a decade. My former role was training financial advisors, including for a Fortune Global 500 insurance company. I’ve been featured in Time Magazine, Yahoo! Finance, MSN, SmartAsset, Entrepreneur, Bloomberg, The Simple Dollar, U.S. News and World Report, and Women’s Health Magazine.

The Annuity Expert is an online insurance agency servicing consumers across the United States. My goal is to help you take the guesswork out of retirement planning or find the best insurance coverage at the cheapest rates for you. 

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