A multi-year guaranteed annuity is an 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 steadily increased 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)?
- How Do MYGAs Work?
- Withdrawal Provisions
- Multi-Year Guaranteed Annuity (MYGA) Rates
- How Are MYGAs Taxed
- Multi-Year Guaranteed Annuities vs. Traditional Fixed Annuities
- MYGAs vs. CDs
- multi-year guaranteed annuity (MYGA) Quotes
- Frequently Asked Questions
- Related Reading
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. An MYGA is best suited for someone approaching retirement and wants tax deferral and a guarantee of investment return.
Buying an MYGA is one way to supplement investment accounts and Social Security payments in retirement by earning a guaranteed interest rate. In addition, 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 an MYGA, you agree to pay an insurance company a premium for a guaranteed fixed interest rate on the contribution for a certain time. The term can be two, three, five, ten, or any number of years up to twenty.
You can either cash out the premium and interest earned or extend your contract after the accumulation period. If you renew your contract, the interest rate may differ from what you originally agreed to.
If you want to withdraw money from the annuity, you may have to pay fees called surrender charges. However, your contract might let you take some money out without paying yearly fees, 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, remember that one of the primary advantages of an MYGA is that they are tax-deferred. As a result, the money withdrawn won’t accumulate triple compounding interest over time.
Multi-Year Guaranteed Annuity (MYGA) Rates
MYGA rates vary slightly from carrier to carrier and change daily. For example, in July 2022, the best rate for an MYGA with a 5-year surrender period was 4.30 percent, and the best rate for an MYGA with a seven-year surrender period was 4.50 percent. The best rates were 4.10 percent and 4.30 percent for MYGAs with five-year and three-year surrender periods, respectively.
MYGA rates are usually higher than CD rates and compound each year. Therefore, a contract with more limiting withdrawal provisions may have higher rates.
How Are MYGAs Taxed
The MYGA allows you to defer interest taxes and compound them each year. Because the tax only occurs when you withdraw the funds, this may lead to a considerable 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. 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 and then offer a different rate later on.
MYGAs vs. CDs
|Who Offers||Insurance Company||Banks|
|Premium Amounts||$2,500 to $1 Million||$500 – No Maximum|
|Terms||2 Years to 20 Years||3 Months to 7 Years|
|Guaranteed Interest Rates||Up to 3.25%||Up to 1.25%|
|Can Lose Money?||No||No|
|Liquid After Term||100%||100%|
|How Are Gains Taxed?||Tax-Deferred||Taxed Annually|
|Annual Liquidity||Up to 10% Annually||No Liquidity|
|Who Protects My Money?||Insurance Company/SGA||FDIC|
A multi-year guaranteed annuity (MYGA) may be the right choice if you want a safe and stable investment option. These contracts offer high-interest rates that beat most CD options and protection from stock market fluctuations. Your money will also grow tax-deferred, meaning you won’t have to pay the tax on your earnings until you withdraw them and start receiving income. And if something happens to you before your contract matures, your beneficiaries will receive the death benefit included in your agreement. Request a quote today to see how much interest you could earn with multi-year guaranteed annuities!
multi-year guaranteed annuity (MYGA) Quotes
Frequently Asked Questions
What does MYGA stand for?
MYGA stands for “multi-year guaranteed annuity.” An MYGA is a fixed annuity that pays out a guaranteed rate of return over a set period.
What is a guaranteed annuity rate?
A guaranteed annuity rate is an insurance product that offers a guaranteed rate of return on your investment. This type of annuity can be a good choice for those looking for a safe and secure way to invest their money.