Retirement Tips: 2 Ways to Earn Interest and Delay Taxes

So, what are the two ways to earn interest and delay taxes? Great question and I'm glad you're here. My name is Stan The Annuity Man, and I’m America's Annuity Agent, licensed in all 50 states. Let’s dive in. I want to educate the public on all things annuity, but let's get into the details. There are no sales pitches here, just facts.

What Is an Annuity and Why It Matters

I always say, "An annuity for what it will do, not what it might do." The "might do" is what agents often use to sell you hypothetical, theoretical, back-tested, hopeful scenarios that sound too good to be true. And guess what? They usually are. Annuities are contracts, and you need to understand that. So, what are the two ways to earn interest and delay taxes in the annuity world? I’ve written books on them: Multi-Year Guarantee Annuities (MYGAs) and Fixed Rate Annuities. Visit The Annuity Man and download them for free, no obligation, no cost.

The Multi-Year Guarantee Annuity (MYGA)

Let’s talk about MYGAs. A Multi-Year Guarantee Annuity is a fixed-rate annuity. It's the annuity industry’s version of a CD. For instance, as of this recording, you can lock in a three-year MYGA. This means you’re locking in that interest rate for three years. In this case, most states have an interest rate of around 3%. Over those three years, you’ll earn 3%, and it compounds tax-deferred. When you eventually pull money out, you’ll pay taxes at the ordinary income rate. And just to be clear, anyone who tells you they can get you a tax-free annuity income is wrong. The IRS doesn’t allow it.

However, what the IRS does allow is tax deferral, which is pretty cool. Many people are in high tax brackets and don’t want to lose a penny but also want to earn interest. A MYGA is a simple, fixed-rate annuity that does exactly what it says: it earns interest and compounds tax-deferred. With most MYGAs, you can also take interest out and put it into a bank account if you want.

If you want to delay taxes and earn interest, a MYGA is a great way to go. You can also ladder them by buying different durations, such as a 3-year, 4-year, 5-year, or 7-year. They can go as long as 10 years or more, but I generally recommend keeping the maturity short with the hope that interest rates go up.

The Indexed Annuity Option

The other way to earn interest and delay taxes is with an Indexed Annuity. These were initially called Equity Indexed Annuities, but now they are known as Fixed Indexed Annuities. They were created in 1995 to compete with CD returns, and that’s exactly what they do. They’re not securities but life insurance products issued at the state level. So, when someone tries to push them as "market return" products, they really aren’t—they’re more like CD products.

Some years may perform better than others, but since 1995, the blended return has stayed around CD levels. The benefit of Indexed Annuities is that once the interest is locked in—meaning the gain on the call option is locked in—it doesn’t go down. If the market drops, you won’t lose any money.

The great news is that when used in a non-IRA account, both MYGAs and Indexed Annuities allow the interest to grow tax-deferred, which is excellent for people who are in high tax brackets. You can protect your principal while letting the interest accumulate, deferring taxes for the future. As they say, you’re essentially pushing the tax "puck" down the ice. Eventually, you'll pay taxes when you pull the money out, but these two products let you earn interest and delay taxes.

Indexed Annuities with Income Riders

Let’s stay on the subject of Indexed Annuities for a bit. In addition to using them for tax deferral and interest growth, you can also add an income rider. Now, I’ve written a book on Income Riders, and you can download that with the other books, including the Fixed Rate Annuity and Multi-Year Guarantee Annuity books.

When you apply for a Fixed Annuity, you can attach an Income Rider. An Income Rider is an additional benefit that grows separately from the indexed annuity. Think of it like drawing a line down the middle of a blank sheet of paper—index option stuff on one side, Income Rider calculation on the other. You can use the Income Rider side to calculate your future income payments.

The good news is that the Income Rider typically has an interest rate that it grows by (though it’s not true interest since you can only use it to calculate future income). This "phantom account" grows tax-deferred so that you can delay taxes on the growth. Whether you choose a Fixed Indexed Annuity standalone or with an Income Rider, both sides of the calculation—accumulation value and income rider—grow tax-deferred.

Conclusion and Next Steps

Once again, if you're looking for interest to grow while delaying taxes, both MYGAs and Fixed Indexed Annuities are great options. If you want to explore this further, visit The Annuity Man, schedule a one-on-one discussion, and let’s talk about what you’re trying to achieve.

The two questions you need to ask are:

1. What do you want the money to contractually do?
2. When do you want those contractual guarantees to start?

If your goal is to earn interest and delay taxes, we can shop for the best MYGAs and Indexed Annuities with the best contractual guarantees for your specific situation.

Remember, you can use our proprietary calculators to run quotes. You can filter by your state of residence and the duration you’re looking for, available 24/7. Let me know if you’re interested, and we can handle the paperwork.

For Indexed Annuities, which are a bit more complex, we’ll need to talk one-on-one. As the number one agent in the country, we’ll give you a brutally factual conversation and put your interests first. From a fiduciary standpoint, that’s how it should be. If an annuity doesn’t fit your needs, we’ll tell you straight.