What Is a MYGA — And Can It Help You Save for Retirement?

An annuity is a common way to save for retirement with tax advantages.

A multi-year guaranteed annuity (MYGA) is an annuity that lets you lock in a guaranteed interest rate for a certain length of time, for example three or five years. This may be to your advantage when interest rates are high, or when you have no immediate need for the money you put into the policy.

Key things to know about MYGAs:

• A MYGA offers a guaranteed interest rate for a certain number of years.
• Interest compounds and grows tax-deferred.
• Your policy value can grow faster when interest compounds tax deferred — this is the case with a MYGA until earned interest is withdrawn.
• Multi-year guaranteed annuities are protected from market risk.
• A MYGA may have a Market Value Adjustment (MVA) version that offers a higher interest rate.
• You may have access to your money without being assessed a surrender penalty, starting in year 2, with 10% penalty-free withdrawals.
• If you have a qualifying terminal or chronic illness or qualifying need for nursing care, you may be able to withdraw funds after year one without fees or adjustments, depending on state availability.
• Withdrawing money from an annuity can result in an IRS penalty if you are younger than 59½.

Benefits of a MYGA

Some of the benefits of a MYGA include the ability to:

• Lock in a high interest rate
• The potential to save for retirement tax deferred
• Protect assets from market risk
• Choose an MVA option with a higher credited interest rate, if available.
• Enjoy a higher rate when you contribute a higher amount, if the issuer offers rate banding

There are also no fees or expenses.¹

Is there a minimum contribution amount?

Yes, a MYGA has a minimum contribution amount, which will depend on the product. For example, our RetireMax Secure annuity (not available in NY) has a minimum contribution of $25,000.

Is there a maximum premium amount?

Yes, companies typically limit how much you can contribute into a MYGA annuity, depending on the product and your age. For example, our RetireMax Secure has a maximum contribution of $2 million up to age 70, and up to $250,000 for ages 86-90.

Is there a minimum or maximum age to own a MYGA?

There are MYGAs you can own from birth, but there’s usually a maximum age at which you can purchase a MYGA. Our RetireMax Secure can be purchased up to age 90.

How are MYGAs protected from market risk?

A MYGA offers a way to grow your principal at an interest rate you lock in. You may not realize the same growth as with higher-risk financial options, but you also don’t have the risk of losing any money. When you purchase a MYGA, you are guaranteed a certain outcome, based on a fixed interest rate determined at issue.

What are the tax advantages of a MYGA?

Because earned interest isn’t taxed until you make a withdrawal, a MYGA is said to grow your principal tax deferred.

Note that buying an annuity within an IRA or other tax-deferred retirement plan does not offer you any extra tax benefits.

If you are considering an annuity within a retirement plan, focus on its features, benefits, risks, and costs; annuities can come with extra fees and costs that other tax-qualified options in a retirement plan may not have.

Can I withdraw money from my MYGA?

If permitted by the IRS, you can withdraw up to 10% annually of the accumulation value of your annuity without a withdrawal charge, starting in year 2. The accumulation value of your annuity equals your premium plus credited interest, minus partial withdrawals and withdrawal charges.

In the first year, withdrawals incur a charge, 7% for RetireMax Secure. After the first year, withdrawal charges apply to any amount above the 10% free annual withdrawal amount. See your policy for details.

Some withdrawal charges may be waived after the first year for qualifying nursing care needs, and qualifying terminal or chronic illness. This also applies to market value adjustments, see below.

Important things to know about withdrawals:

• Withdrawals cannot be paid back into the annuity.
• There’s often a minimum partial withdrawal. For RetireMax Secure, that minimum is $500. You must also keep at least $5,000 in the annuity to keep it in force.
• You may be able to set up automatic withdrawals to take out money on a regular basis, using systematic withdrawals for your future retirement income.
• Withdrawal charges do not apply to the death benefit.
• All withdrawals made from annuities with pre-tax contributions are taxed as ordinary income. All withdrawals from an annuity purchased with non-qualified monies are taxable as ordinary income only to the extent there is a gain in the policy. In addition, withdrawals before age 59½ may be subject to a 10% IRS Penalty.
• If you purchases the annuity as part of an employer’s 403(b) or 457(b) retirement plan, you may also be able to take a loan, using your annuity as collateral, without fees or withdrawal charges, if your employer permits it. Loans are subject to IRS rules, guidelines and limitations, and any limitations in applicable plan documents. If you take a loan, you will be provided with a repayment schedule.

What is a Market Value Adjustment (MVA)?

MYGAs are sometimes available with a Market Value Adjustment (MVA). An MVA is an upward or downward adjustment that may be applied to amounts withdrawn during the rate guarantee period.

A MYGA with an MVA may offer a higher guaranteed credited interest rate. The MVA option may be a good choice if you think that you’re unlikely to need early access to cash. If you leave the money in the annuity for the full rate guarantee period, or only withdraw the yearly free withdrawal amount, the MVA isn’t triggered — and the payout is not adjusted. The MVA usually also doesn’t apply to the death benefit.

If you do cash in the annuity early or take excess withdrawals, the surrender value of your policy will be adjusted based on a reference interest rate compared to when you purchased the annuity.

• If the reference interest rate has gone down, your surrender value is increased.
• If the reference interest rate has gone up, your surrender value is decreased.

The magnitude of the adjustment is based on the size of the interest rate change and on the time left in the rate guarantee period. So, excess withdrawals made early in the rate guarantee period will have a larger adjustment, for the same rate change, as excess withdrawals made towards the end of the rate guarantee period.

MVA charges may be waived after the first year for qualifying nursing care needs, and qualifying terminal or chronic illness. The MVA charge is waived regardless of whether the adjustment is positive or negative.

What conditions count as terminal illness, chronic illness, or nursing care in order to waive withdrawal charges and market value adjustments?

This depends on the waiver riders available with your policy. For RetireMax Secure, for withdrawal charges and market value adjustments to be waived after the first policy year, you need proof from a health care professional based in the U.S. that one of the following applies:

Terminal Illness: Life expectancy is 12 months or less due to a terminal illness or injury.

Nursing Care: You are permanently receiving intermediate nursing care, including medical facilities or home health care, for an organic disease for at least 90 consecutive days.

Chronic Illness: You have a permanent inability to perform two of six activities of daily living, bathing, dressing, transferring, toileting, continence, and eating, without substantial assistance for a period of at least 90 consecutive days, or you are suffering from permanent severe cognitive impairment for at least 90 consecutive days.

Waiver riders are automatically added at policy issue, depending on state approval and availability. There are no charges for the waiver riders. Systematic withdrawals are not allowed under the waiver riders though you can make multiple withdrawals.

I am trying to buy a MYGA, but it says it’s not available in my state. Why is that?

Companies sometimes offer different products in different states to comply with different state regulations. For example, RetireMax Secure is available in all states except New York, whereas Green Mountain Freedom 5 is only available in New York.

Ask your agent about MYGAs available in your state.