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Multi-Year Guaranteed Annuity (MYGA)

Make sure you have the right retirement plan for your peace of mind

North Carolina Annuity

What Is A Multi-Year Guaranteed Annuity (MYGA)

A multi-year guaranteed annuity (MYGA) is a type of fixed annuity and a tax-deferred alternative to a traditional certificate of deposit (CD) that offers a guaranteed interest rate for a specified period, typically ranging from three to ten years. During this period, the annuity holder’s principal is protected, and they receive regular interest payments based on the guaranteed rate.

MYGAs provide a predictable and stable source of income, making them suitable for individuals seeking to preserve capital and generate steady returns. Unlike other fixed annuities, MYGAs do not have annual reset periods, meaning the interest rate remains fixed for the entire contract term.

Upon maturity, annuitants can choose to renew the contract, withdraw funds, or convert to another annuity option. MYGAs are often used for retirement planning and offer tax-deferred growth, meaning taxes on earnings are postponed until withdrawals are made.

The benefits of a Multi-Year Guaranteed Annuity

  • Guaranteed Interest Rate: MYGAs offer a fixed interest rate that is guaranteed for the entire contract term, providing stability and predictability in returns.
  • Principal Protection: The principal amount invested in a MYGA is protected from market fluctuations and is guaranteed by the insurance company, ensuring that it won’t decrease due to poor market performance.
  • Stable Income Stream: MYGAs provide a reliable source of income with regular interest payments over the contract period, offering financial security for the annuitant.
  • No Annual Reset: Unlike other fixed annuities, MYGAs do not have annual reset periods, meaning the interest rate remains fixed for the entire duration of the contract, providing consistency in earnings.
  • Flexible Contract Terms: MYGAs typically offer a range of contract terms, allowing annuitants to choose the duration that best suits their financial goals and needs, whether it’s three, five, seven, or ten years.
  • Tax-Deferred Growth: Earnings within a MYGA grow tax-deferred until withdrawals are made, potentially reducing current tax obligations and allowing for greater accumulation of funds.
  • Retirement Planning: MYGAs are commonly used for retirement planning, providing a secure source of income during retirement years when other sources of income might be limited.
  • Legacy Planning: MYGAs can be structured to provide for beneficiaries, allowing annuitants to leave a financial legacy for loved ones after their passing.
  • Simplicity: MYGAs are straightforward financial products, making them easy to understand and manage, especially for individuals who prefer simplicity in their financial planning.
  • Inflation Protection: Some MYGAs offer inflation-adjusted options or riders, helping to protect the purchasing power of income payments over time.

Multi-Year Guaranteed Annuity (MYGA) vs. Certificate of Deposit (CD)

  • Interest Rate Guarantee:
    • MYGA: Offers a guaranteed interest rate for the entire contract term, typically ranging from three to ten years.
    • CD: Also provides a fixed interest rate, but for a predetermined period, commonly ranging from a few months to several years.
  • Principal Protection:
    • MYGA: The principal amount invested is protected from market fluctuations and guaranteed by the insurance company.
    • CD: The principal amount invested is also protected, ensuring that it won’t decrease due to market changes.
  • Tax Treatment:
    • MYGA: Earnings within a MYGA grow tax-deferred until withdrawals are made, potentially reducing current tax obligations.
    • CD: Interest earned on a CD is subject to taxation in the year it’s earned, even if it’s not withdrawn until maturity.
  • Flexibility:
    • MYGA: Typically offers less liquidity compared to CDs, as early withdrawals may incur surrender charges or penalties.
    • CD: Offers more flexibility in terms of withdrawal options, with penalties for early withdrawals but generally less restrictive than MYGAs.
  • Insurance Protection:
    • MYGA: Backed by the financial strength and claims-paying ability of the issuing insurance company, with state guaranty associations providing additional protection up to certain limits.
    • CD: Insured by the Federal Deposit Insurance Corporation (FDIC) for up to $250,000 per depositor, per insured bank, providing a high level of protection against bank failure.
  • Legacy Planning:
    • MYGA: Can be structured to provide for beneficiaries, allowing annuitants to leave a financial legacy for loved ones after their passing.
    • CD: Can also be passed on to beneficiaries, but the process may involve probate and potential taxation, depending on estate planning arrangements.
  • Market Exposure:
    • MYGA: Provides protection from market downturns while offering a fixed interest rate, making it less exposed to market volatility.
    • CD: Not directly tied to market performance, providing stability but also potentially missing out on higher returns during periods of market growth.

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