MULTI-YEAR GUARANTEED ANNUITY
A multi-year guaranteed annuity, or MYGA, offers a predetermined and contractually guaranteed interest rate for a set period of time. MYGA products are Fixed Indexed Annuity products that offer many of the same features as a typical CD. Certificates of Deposits are issued by banks or brokers while MYGAs are issued by insurance companies. This means that CDs are insured by the FDIC up to $100,000 for non-retirement accounts. Annuities are not FDIC insured but are safeguarded by individual state reserves. Annuity coverage varies state-to-state, ranging from $100,000 to $300,000.
MYGA products are increasingly popular due to low-interest rates offered by banks and because they provide benefits CDs can’t. These annuities can be rolled over without triggering a tax-event. Using what’s known as a 1035 exchange, the MYGA annuity owner can transfer money from one annuity to another without showing an income. This is not possible with CDs, which generate income statements every year.
Another appeal is that the owner can make partial withdrawals from an MYGA. Unlike a CD, a typical MYGA product will allow a withdrawal of up to 10% of the initial investment annually. This feature accommodates any unexpected withdrawal needs. In contrast, liquidating even part of a CD requires the owner to cash out the entire fund and pay a sizable surrender charge. MYGA annuities permit the ability to withdraw interest as monthly income but don’t overlook the 10% IRS tax penalty if it applies. Remember that all annuities are subject to a 10% tax penalty when liquidated prior to the age of 59.5.
Because an MYGA’s rate is guaranteed for the full contract term, the options are appealing and simple to understand. Your UAR team can help you consider all appropriate annuity options for your valued clients.
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