Understanding Multi-Year Guaranteed Annuities
September 28, 2022 | Tom Peterson
What is a MYGA? MYGA stands for Multi-Year Guaranteed Annuity. This specific type of annuity offers a guaranteed fixed interest rate for an established period of time selected by the owner (e.g. 4% for five years). The interest compounds daily, which allows for quicker growth opportunities.
The beauty of a MYGA is in its simplicity. One of the advantages of a Multi-Year Guaranteed Annuity is that they are a no-load annuity with lower costs and fees than other similar investments.
The interest earned in a MYGA is not taxed until withdrawn (taken out of annuity for personal use). Additionally, the principal is guaranteed when the funds remain in the MYGA through the end of the guarantee period, or when withdrawals do not exceed the penalty fee amount.
The Workings of a Multi-Year Guaranteed Annuity
Funding a MYGA requires a sum of money that you will give temporarily to the insurance company in exchange for specific interest growth over a set period of time. You have the ability to withdraw from those funds during the accumulation period.
Certain insurance companies may allow for penalty-free withdrawals under certain written rules; anything beyond that amount, you may be subject to surrender fees. This can vary significantly from one company to another, so working with an experienced agent can help you understand exactly how your policy works.
Once your accumulation period has matured, you can roll the growth into another annuity without facing any tax consequences. Or you can choose to walk away with your original funds – or principal, plus the interest earned over the accumulation period. If you decide to take the funds and pocket them, they will probably be subject to taxation.
A MYGA offers tax-deferred interest, which compounds daily. Taxes can look differently based on the type of monies used to fund the MYGA. That means if you used qualified funds like an IRA, or another type of tax-advantaged account, you would end up paying tax on the principal and the interest gained when withdrawing the money. If you choose to fund the MYGA with a non-qualified fund, you will be subject to taxes on the interest earned only.
Interest Rate of MYGAs
Interest rates are set by the issuing insurance company and may vary by the state in which they are written.
How Twin City Underwriters Can Help in This Process
At Twin City Underwriters, Inc. (TCU), we have been helping people make sound insurance decisions for over 50 years. We understand the significance of protecting what is important to you. Our goal is to help individuals and families determine if they are a suitable candidate for an annuity. To make this recommendation, our team will evaluate your financial objectives, current financial situation, and investment or savings horizon.
We have stable, long-term relationships with many leading insurance companies. We use those relationships and our experience to walk you through the process of selecting and applying for a suitable annuity. In addition, we provide ongoing customer service as questions arise and your needs change.
At Twin City Underwriters, we know that individualized attention to a client’s personal situation and needs are especially important, which is why we take the time to understand you and your financial goals.