Multi-Year Guarantee Annuities (MYGAs) are simply contracts with insurance companies. You deposit a lump sum, and in return, the insurer guarantees a fixed interest rate for the entire term of your contract. Unlike certificates of deposit (CDs), your growth is tax-deferred, which means you do not pay taxes until you withdraw.
With a MYGA, you contribute a lump sum. For our products, this requires a minimum of $100,000 for a set number of years (anywhere from three to 10). During the accumulation phase, your money grows at the agreed-upon fixed rate.
Upon contact maturity, you then decide whether to take your funds, roll into another contract or even exchange into a new annuity, all with the benefit of tax deferral.
With a MYGA, you are essentially setting money aside for a defined period, knowing exactly what return you will get at the end. Unlike the stock market, there is no guesswork. Your growth is guaranteed.
Multi-Year Guarantee Annuities appeal most to conservative savers who want predictable growth without daily market risk. Among the scenarios where MYGAs can be useful:
The biggest potential negative with a Multi-Year Guarantee Annuity is limited liquidity. If you withdraw more than allowed in a given year (usually 10%), you may face a surrender charge. These are usually higher at the beginning of the term, and decline over time.
These charges usually start high (in the range of 7-9%) and decline gradually until they hit zero at the end of the term. Many MYGAs include a Market Value Adjustment (MVA) provision, which can increase or decrease the surrender value depending on interest rate changes.
Multi-Year Guarantee Annuity interest growth is tax-deferred (but not tax-free). Withdrawals are taxed as ordinary income. Withdrawals before age 59½ can also trigger a 10% federal early withdrawal penalty, like many other tax deferred products. This means an MYGA isn’t a good choice for money that may be needed early.
It can be, but it’s not guaranteed by the FDIC like a bank deposit. The guarantee comes from the financial strength of the issuing insurance company, so this should be considered carefully. There are several independent agencies (A.M. Best, Moody’s, and S&P) that rate insurer solvency. Many states also have guaranty associations similar to the FDIC) that can protect against insurer insolvency, but these vary in coverage.
This must be considered before you make an investment in Multi-Year Guarantee Annuities.
Is a Multi-Year Guarantee Annuity right for you?
Multi-Year Guarantee Annuities can provide predictable, tax-deferred growth for money, if you can commit it for a length of times (sometimes many years) without needing it. A MYGA can be considered with other vehicles like CDs and bonds, but there are a number of factors to consider.
Miser Wealth Partners can provide you with detailed information on all annuity products so you can make informed decisions about what is best for you.
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