So what are your four choices at the end of your MYGA term? Make sure you know your options so you can make the best decision for your specific situation. Let’s go.
At the end of an MYGA term, the first choice you have is to stay at the same carrier. So, at the end of the term, the carrier that you're currently at will offer a renewal rate. Sometimes it's high; sometimes it's competitive; sometimes it's shallow. But we have to look at that because if that specific carrier is often an excellent renewal rate, we'll just stay right there, right? It makes sense because we're looking for the highest contractual guarantee for your specific situation. And if you want to stay the course and keep deferring and have this guaranteed interest rate, we're going to look at the renewal rate.
The second thing that you can do is you can transfer it to another MYGA. Let's just say the renewal rate comes in very, very low, and you've said, "this is the duration I want," we can do what's called a 1035 transfer if it's a non-IRA, or if it's IRA MYGA, you can go from IRA to IRA. Both are non-taxable events, but we can transfer them to a higher-yielding MYGA.
For your third choice, let's just say you get to the end of the MYGA term, and you say, "You know what? I don't want principal protection and just yield anymore. What I'd like is to take that asset and create a lifetime income stream." So, we can take that multi-year guarantee annuity and transfer it to, say, a single premium immediate annuity if you need income to start right away.
Before we make that transfer, we're going to talk to the MYGA company you're currently at and see if they offer an immediate annuity quote. Some do, some don't. We're going to look at their quote, and then we're going to do an apples-to-apples comparison quote with all the rest of the carriers. We’re going to point you toward the highest contractual guaranteed lifetime income stream if the lifetime income stream is the goal.
Your fourth and final choice is the obvious choice, right? Cash it in. You can cash it in. You can say, "Stan the Annuity Man, send me the check," and we will send you the paperwork. You'll send it back to us, and in about two weeks, you're going to get your money. It could be sooner, but that's about the average time it takes once we get the paperwork back from you.
So, let's dig a little bit deeper. Let's just say that of the four choices, you decide to transfer either to another MYGA or another annuity type, an immediate annuity, deferred income annuity. Understand that the cost basis, the original cost basis, which is the money you originally put in, will be a non-taxable event transfer to that new annuity. For instance, let's just say you had $100,000 in the multi-year guarantee annuity, and it's now worth $130,000, and you're going to transfer it to an immediate annuity. So $130,000 will transfer to the immediate annuity, but the $100,000 cost basis will transfer. I know. I don't do tax advice. Only CPAs and tax lawyers do tax advice, but this is basic elementary stuff that you need to know because once you take money out of an annuity, it's taxed last in, first out, gains first at ordinary income levels. Still, you need to know that that original cost basis transfers.
Let's just say that the choice is I'm going to transfer it to another multi-year guarantee annuity, or I'm going to transfer it to an Index annuity, or an immediate annuity, or deferred income annuity. Okay? That's the decision. Just understand that on the cost basis, the original amount you put into the annuity will transfer to the new annuity along with interest. So, just to clarify, an example, let's just say you have a multi-year guarantee annuity, put $100,000 in. It's now worth $130,000. The $130,000 is going to transfer, that total amount, that interest earned, et cetera. But our friends at the IRS will look at the cost basis, which is the $100,000.
Just remember, you're in complete control of the asset. What do you need to tell us at the end of the term? You have these four choices; what’s the goal? Has the goal changed? Is it the same? Regardless, we're going to listen to you, and we're going to implement whatever you tell us to do in a timely fashion.
Never forget to live in reality, not the dream, with annuities and contractual guarantees! You can use our calculators, get all six of my books for free, and most importantly book a call with me so we can discuss what works best for your specific situation.