Multi-Year Guarantee Annuity Definition

Okay, so you must be a CD buyer. Are you a CD buyer? Because if you are, you will love Multi-Year Guarantee Annuities (MYGAs).

You may have heard about it, but probably not at the bad chicken dinner seminar. That's because the commissions on MYGAs are very low, and if they did a seminar on them, they'd probably just serve coffee since they couldn't afford anything else.

That alone should tell you the value of the product. MYGAs are essentially the annuity industry's version of a CD.

MYGAs vs. Annuities

So, when you hear people saying, "I hate all annuities. Annuities are expensive. Annuities are bad," most of them don't understand that MYGAs are actually very simplistic. Most of them have no annual fees. For this specific product, the Multi-Year Guarantee Annuity, MYGA, it functions similarly to a CD.

In other words, you have a guaranteed annual interest rate that's contractual for a specific period of time. Sound familiar? Yeah. That's how a CD works.

Comparing MYGAs and CDs

We're going to go through all of that information about Multi-Year Guarantee Annuities, compare them to CDs, and point out that one's not better than the other—they just complement each other.

MYGAs have a different benefit proposition than CDs. Stick with me until the end, and I'll tell you how to get my Multi-Year Guarantee Annuity owner's manual.

Yes, there's enough information on the product to write a short book on it, which I did because I want my clients to be fully informed about what they're getting. If you want to see the best MYGA rates in the country, visit The Annuity Man, where we have a live feed of the best MYGA rates available in your state. Since MYGAs are regulated at the state level, each state has approved MYGAs, and you can pull up your state, select the duration you're interested in, and see the top guarantees in the country.

Tax Benefits and MYGAs

What is the main difference between MYGAs and CDs? Here's the primary difference: with a CD in a non-IRA account, you have to pay taxes on the interest you earn every year. However, with a MYGA in a non-qualified account, the interest is tax-deferred and compounds. Some MYGAs have simple interest, while most have compounding interest, but you don't have to pay taxes on that interest annually.

Eventually, you will have to pay taxes when you withdraw the money, but there are many people who just want to keep their money safe without losing any, and they only want a guaranteed interest rate. MYGAs and CDs both serve this purpose. Which one's better? They're both good options.

Using MYGAs and CDs Together

If you're a CD buyer, you'll like MYGAs. The key difference often comes down to duration. I don't sell CDs, but I think they're great—they serve the same function that MYGAs do by providing an interest rate.

If your time horizon is one to two years, then a CD is likely your best option for the highest contractual rate. If your time horizon is three to five years or more, a Multi-Year Guarantee Annuity is typically going to offer the highest contractual annual yield.

For the best MYGA rates, visit The Annuity Man. For example, if you have $500,000 and want to create a five-year fixed-rate ladder, you would buy a one-year CD, a two-year CD, a three-year MYGA, a four-year MYGA, and a five-year MYGA.

Tax Deferral and Safe Money Planning

Now, if both products are inside an IRA, they're both tax-deferred, but outside of an IRA, that's where MYGAs really shine for safe money planning because the interest is tax-deferred.

The primary benefit of MYGAs is their tax deferral, and there are no annual fees, no moving parts, and no market attachments. They're easy to understand.

The limitation is that if you buy a five-year MYGA and want to take out your money in year three, there may be surrender charges during that period. Once you pass the five-year mark, there are no surrender charges. Another limitation is that some carriers don't offer MYGAs. You'll need to check the feed at The Annuity Man to see who's offering them in your state.

Additional MYGA Details

Some MYGAs allow you to peel off interest, so if you want to protect your principal but have the interest paid to your bank account every month, some products offer this feature. You can filter the MYGA feed to see which ones offer this.

Additionally, there's not a lot of inventory for MYGAs under a three-year duration right now, although there are some with a one-year term. If you're looking for a one-year option, you may be better off buying a CD.

Typically, MYGAs start at the three-year level, with many available at the five-year level. You can go as far as 10 years, but I wouldn't recommend going beyond seven years, as the current yield curve isn't rewarding you to lock in longer-term rates.

MYGAs at the End of the Term

A common question I get is, "What happens at the five-year mark if I don't want the money?" The answer is simple: we follow IRS Rule 1035. This rule allows for an annuity-to-annuity transfer without a taxable event. If you have a MYGA and want to keep deferring the taxes, we can transfer it to another MYGA, keeping the tax deferral in place.

If the MYGA is in an IRA, you can transfer it to another IRA without triggering taxes as well.

Now, about that book I promised you—the MYGA Owner's Manual. To get your MYGA Owner's Manual, go to the The Annuity Man and download it for free.

I encourage you to browse my site and check out current rates. If you find a rate you like and want to lock it in, let us know. We'd be happy to work with you. Thanks for joining me, and we'll see you next time.