Multi Year Guaranteed Annuities (MYGA)
MYGAs: Everything You Need to Know
As you look into financial vehicles for your retirement money, you may be seeking something more nuanced than a simple high yield savings account or possibly less risky in the mid term than ETFs. The term MYGA may have come up already, and if you are interested in seeing your money grow with principal protection this type of financial vehicle may be right for you.
What is a MYGA?
The term MYGA stands for Multi-Year Guaranteed Annuity. You may sometimes hear this product referred to as a single premium deferred annuity. The growth part of the product is very similar to a certificate of deposit product sold by banks. The difference is that MYGAs offer you a tax deferral on your growth.
How MYGAs Work
MYGAs are a single premium deferred annuity with an interest rate on the single premium that is guaranteed to remain consistent for a specified period of time. This time is based on a term selected by the policyholder. Unlike other deposit products, the interest earned is tax free until withdrawn. This is different from bank products like certificates of deposit where you are expected to pay taxes on the interest earned each year. Additionally, these policies may be rolled over to certain other types of insurance policies without tax.
As with most financial vehicles that have competitive guaranteed rates, you are charged a fee for withdrawing your funds early, before the previously agreed guaranteed rate period has concluded. However, unlike other guaranteed rate products, the policyholder using a MYGA may elect to take a slightly lower yield in order to be able to withdraw without penalty in the event of death, major illness or confinement to a long term care facility. Depending on the terms of your policy, you may also be eligible to take disbursements free of charge of up to 10% of the account’s premium in any calendar year.
MYGA Laddering
Many people choose to ladder their MYGAs by dividing a single premium into multiple MYGA policies with different guarantee periods— for example at 3, 5 and 7 years. Then they can receive disbursements from the first while the others mature, and when the first has been nearly exhausted, the next will begin to disburse and so on.
Are MYGAs Safe?
MYGAs are considered a safe, reliable vehicle for your money because they offer guaranteed growth as they are low-risk. This is because:
- MYGAs are shielded from market downturns, guaranteeing a steady, reliable return.
- MYGAs are flexible and hands-off.
- MYGAs can come with benefits or riders that secure your money for a beneficiary if something were to happen to you.
