April 5, 2016 by Troy Baccus

What is a Multi-Year Guaranteed Annuity or MYGA?

A popular type of annuity is called a Multi-Year Guaranteed Annuity, or MYGA. Below we’ll explore the question “What is a MYGA?” and give examples of when it’s appropriate to use a MYGA as a savings vehicle.

What Does MYGA Stand for?

MYGA stands for “Multi-Year Guaranteed Annuity.” It is a fixed annuity, meaning it has a fixed interest rate that is applied to invested funds for multiple years in a row. This type of annuity is primarily used to grow funds as opposed to generate income.

Current Example of a MYGA

As of January 2017 our most popular MYGA has a 5 year time commitment and credits a 2.75% compounding interest rate each year. A $100,000 contribution to the annuity would grow to $114,527 after 5 years assuming that no withdrawals are made. After 5 years the funds can be withdrawn, re-invested, or even left in the annuity to continue to grow. If you’re interested in exploring a personalized MYGA, please fill out our custom annuity form and one of our agents will email or call you (your preference).

How Flexible is a MYGA?

Many of our clients buy MYGAs because they want the bulk of their funds kept safe but they want to use the interest they earn as a supplement to their retirement income. Most of the MYGAs that we recommend have a liquidity feature allowing a person to withdraw the interest they earn each year. For example, a person might buy the MYGA detailed in the example above with a total investment of $500,000. Each year the client is able to withdraw the interest of $13,750 to help with living expenses. Every year for 5 years the $13,750 is available for withdrawal but meanwhile the $500,000 is not a risk in the stock market. The MYGAs we recommend do not have fees either. After a total of 5 years the client can re-position the $500K into another investment or keep it where it is – totally up to them!

Who Should Buy a MYGA?

MYGAs are typically purchased by people older than 55 because of the tax treatment of annuity funds. The IRS imposes a 10% penalty on gains withdrawn from an annuity if the owner is under age 59 1/2 . There is no adverse tax treatment if funds are withdrawn by an owner older than 59 1/2. Therefore, if you purchase a 5 year MYGA, 55 is a perfect age to make the purchase because you’ll be past the 59 1/2 threshold for avoiding any tax penalties when you withdraw.

Are There Reasons For A Younger Person Buy a MYGA?

The key is whether the younger person plans on accessing the funds prior to age 59 1/2. As stated above, 59 1/2 is the age where the IRS no longer imposes any tax penalty on gains. Common funds that a younger person might rollover into an MYGA include 401(k) and IRA accounts. 401(k)s and IRAs are already earmarked as retirement accounts, therefore annuities could be appropriate.

What are the Advantages of MYGAs over CDs?

In an earlier post, we explored some key differences between annuities and CDs. MYGAs have several strengths over bank CDs. First off, the fixed interest rates are usually significantly higher for MYGAs. Also, the funds in an MYGA grow on a tax-deferred basis. This means you don’t pay taxes on gains each year. In an MYGA, the funds grow tax-deferred within the annuity and taxes are not due until funds are withdrawn.

How Do You Purchase a MYGA?

MYGAs must be purchased through a licensed insurance agent or agency. We have access to the most competitive MYGAs as well as other types of fixed annuities that might be more appropriate for you particular situation. Visit our rate page to check the current MYGA rates. You can work with us to receive a custom annuity quote.

Disclosure: An annuity is an insurance product that can be used as part of a retirement strategy. Annuities are not FDIC insured, not bank guaranteed, and may lose value if surrendered early. An annuity is subject to the claims-paying ability of the issuing insurance company. Before buying an annuity, consider the objectives, risks, charges, and expenses of the annuity. Please read all disclosures carefully before buying an annuity. Please review your issued annuity policy during any “free look” term offered by the insurance carrier to ensure accuracy. Because annuity interest rates fluctuate, the rates listed above might not be current. As such, the annuity rates listed on this page are only believed to be accurate as of the date shown at the top of the page. Montana Life Group is compensated by insurance carriers for the sale of annuities. Montana Life Group has prepared the material on this page for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice.