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What is a MYGA

What Is a MYGA — And Does It Help You Save for Retirement?

An annuity is a common way to save for retirement with tax advantages.

A multi-year guaranteed annuity (MYGA) is an annuity that lets you lock in a guaranteed interest rate for a certain length of time, for example three or five years. This may be to your advantage when interest rates are high, or when you have no immediate need to tap into your savings.

Key things to know about MYGAs:

  • Like a CD, a MYGA offers a guaranteed interest rate for a certain number of years.
  • Interest compounds annually and savings grow tax-deferred.
  • Savings grow faster when interest compounds without being taxable - this is the case with a MYGA until earned interest is withdrawn.
  • Multi-year guaranteed annuities are protected from market risk.
  • A MYGA may have a Market Value Adjustment (MVA) version that offers a higher rate.
  • You have access to your money, starting in year 2, with 10% penalty-free withdrawals.
  • Withdrawing money from an annuity can result in tax penalties if you are younger than 59 ½. Ask your tax advisor about the tax benefits and implications of annuities.

 

How is a MYGA different from a CD?

A CD is a great way to lock in a high interest rate, but every year the interest gained is taxable. With a MYGA, the earned interest is only taxable when withdrawn.  

With a CD, you also can’t access your money without a withdrawal charge. With a MYGA, you can withdraw up to 10% of your funds annually without a withdrawal charge, starting in year 2. You may also be able to withdraw money without a charge if you need qualified nursing care or have a terminal illness.

And you may be able to set up systematic withdrawals for a specific amount (e.g., $500/month) or for the earned interest only.

MYGAs typically have withdrawal charges for early and/or excess withdrawals. You often have to keep a minimum amount in the annuity (e.g., $5000) to keep it in force.

 

Benefits of a MYGA

Some of the benefits of a MYGA include the ability to:

  • Lock in a high interest rate
  • Grow retirement savings tax deferred
  • Protect assets from market risk
  • Chose an MVA option with a higher interest rate
  • Enjoy a higher rate when you deposit a higher amount (if the issuer offers rate banding)

There are also no fees or expenses.

 

Is there a minimum deposit amount?

Yes, a MYGA has a minimum deposit amount, which will depend on the product. For example, National Life Group’s RetireMax Secure (not available in NY) has a minimum deposit of $25,000.

 

Is there a maximum premium amount?

Yes, companies typically limit how much you can deposit into a MYGA annuity, depending on the product and your age. For example, National Life Group’s RetireMax Secure has a maximum deposit of $2 million up to age 70, and up to $250,000 for ages 86-90.

 

Is there a minimum or maximum age to own a MYGA?

There are MYGAs you can own from birth, but there’s usually a maximum age at which you can purchase a MYGA. National Life Group’s RetireMax Secure can be purchased up to age 90.

 

Who buys MYGAs and why?

People buy annuities for a variety of reasons. Some of the buyers include:

  • People who love a sure thing - MYGAs have a guaranteed rate and are protected from market risk.
  • People who want to grow their retirement savings faster - interest compounds annually and earned interest isn’t taxable until withdrawn.
  • People who may want access to their money - you can withdraw up to 10% of the accumulation value of your MYGA every year, without a withdrawal charge (starting in year 2).
  • People want options after the end of the interest-guaranteed period — you can roll over funds, keep the money in the annuity (earning a guaranteed minimum rate), or withdraw all your money at no charge at any time.

 

How are MYGAs protected from market risk?

A MYGA offers a way to grow your savings at an interest rate you lock in. You may not realize the same growth as when investing in the stock market, but you also don’t have the risk of losing any money. When you purchase a MYGA, you are guaranteed a certain outcome, based on a fixed interest rate determined at issue.

 

What are the tax advantages of a MYGA?

Because earned interest isn’t taxed until you make a withdrawal, a MYGA is said to grow your savings tax deferred. This is different than with a CD, where you have to pay taxes every year on earned interest.

Note that buying an annuity within an IRA or other tax-deferred retirement plan doesn’t give you any extra tax benefits.

If you're thinking about purchasing an annuity as part of a retirement plan, base your decision on the annuity's features and benefits, and on its risks and costs, not on tax considerations.

 

What is a Market Value Adjustment (MVA)?

MYGAs are sometimes available with a Market Value Adjustment (MVA). An MVA is an upward or downward adjustment that may be applied to amounts withdrawn during the rate guarantee period.

A MYGA with an MVA likely offers a higher guaranteed interest rate. The MVA option may be a good choice if you think that you’re unlikely to need early access to cash. If you leave the money in the annuity for the full rate guarantee period (or only withdraw the yearly free withdrawal amount), the MVA isn’t triggered — and the payout is not adjusted. The MVA usually also doesn’t apply to the death benefit.

If you do cash in the annuity early or take excess withdrawals, the accumulation value of your policy will be adjusted based on a reference interest rate compared to when you got the annuity.

  • If the reference interest rate has gone down, your accumulation value is boosted
  • If the reference interest rate has gone up, your accumulation value is decreased

The magnitude of the adjustment is based on the size of the interest rate change and on the time left in the rate guarantee period. So, excess withdrawals made early in the rate guarantee period will have a bigger adjustment (for the same rate change) as excess withdrawals made towards the end of the rate guarantee period.

 

I am trying to buy a MYGA, but it says it’s not available in my state. Why is that?

Companies sometimes offer different products in different states to comply with different state regulations. For example, RetireMax Secure is available in all states except New York, whereas Green Mountain Freedom 5 is only available in New York.

Ask your agents about MYGAs available in your state.

 

Next Steps

  • Find out what is best for you and your unique situation: Work with your agent or a financial/tax professional
  • Looking to buy a MYGA or another annuity? Request a call from a National Life agent.

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