A Multi-year Guaranteed Annuity annuity may help you meet your retirement savings goals if:
What is a multi-year guaranteed annuity, or MYGA?
A multi-year guaranteed annuity, or MYGA, is an insurance product that provides guaranteed interest rates for a set period of time. These contracts are typically funded with a single premium payment. The insurer will credit interest to your contract’s value from the date of issue until the end of the guarantee period. They are long-term products and early withdrawals may be subject to a surrender charge and market value adjustment.
What is the difference between a MYGA and other fixed interest-type products?
There are a number of important differences between MYGAs and other fixed-interest types of products. Various types of financial products may make sense for your needs and this is not intended to be a comprehensive comparison. What’s important to understand about MYGAs is that they are insurance products issued by an insurance carrier. Their guarantees are backed by the financial strength and claims-paying ability of the issuing company. They are not FDIC insured. Fully review product details before making a purchasing decision.
Who is responsible for the guarantees?
The issuing insurance carrier is responsible for the guarantees. Guarantees are backed by the financial strength and claims-paying ability of the issuing carrier.
What is the least amount of money I need to buy a MYGA?
Multi-year guaranteed annuities have a minimum requirement as low as $2,500 up to a maximum of $1 million.
Should I put all of my money in a MYGA?
No! While a MYGA offers competitive interest rates, any premium placed in a MYGA will be subject to surrender charges that decline over time and possibly a market value adjustment. Carefully consider your liquidity needs before purchasing a multi-year guaranteed annuity.
What penalties will I pay if I surrender my entire policy early?
However, withdrawals above any free withdrawal amount including withdrawals of the entire contract value, a.k.a. “surrendering” your contract are generally subject to a surrender charge and market value adjustment. Free withdrawal amounts vary by product. Keep in mind that any withdrawals will reduce the contract value. Additionally, withdrawals are taxed as ordinary income and, if taken prior to age 59 1/2, a 10% federal tax penalty may also apply. Before making a purchase decision, it’s important for you to speak with a financial and tax professional to understand exactly how surrender charges, market value adjustments and taxes apply to you specific annuity contract.
Fixed Annuities Vs CDs
Both vehicles offer a safe way to save money, crediting higher interest rates than available through savings accounts by requiring you to “lock” your money away for a period of time. However, fixed annuities are insurance products, so guarantees and payments are based on the claims paying ability of the insurance company. Here is a comparison of some of the key features of annuities and CDs:
| Fixed Annuity | CD | |
|---|---|---|
| Sold by | Insurance Companies | CD |
| Size | $2,500 – $1,000,000 | Virtually any denomination |
| Term | 3-10 years, but may vary by carrier and product | 3-months – 10 years, but may vary by bank |
| Interest Rates | Vary by term and size but typically higher than CD Rates | Vary by term and size but typically lower than fixed annuity rates |
| Taxes | In general, contract growth is tax-deferred | In general, interest is taxable annually as earned |
| Liquidity | You may be allowed to withdraw a portion of the premium annually without penalty | Any amount withdrawn is generally subject to penalty |
| Withdrawal Provisions | A surrender charge and market value adjustment typically apply to any withdrawals above the free withdrawal amount | All withdrawals are charged, typically equal to a set number of days of interest |
| FDIC Insured | No | Each depositor is insured by the FDIC up to at least $250,000 |
This is a general comparison for illustrative purposes only. It is not intended as financial or tax advice. You should carefully consider your options and consult with a financial and tax professional for help determining which product is best for you. Actual detains may vary depending on the insurance company, bank and/or product.