Annuities
Multi-Year Guaranteed Annuities (MYGAs)
What Is a Multi-Year Guaranteed Annuity (MYGA)?
A MYGA is the simplest, most predictable fixed annuity on the market — and one of the most powerful tools for protecting and growing retirement assets in a high-rate environment.
The Core Idea
You deposit a lump sum with an insurance company. They contractually guarantee a fixed interest rate for the full length of your chosen term — typically two to ten years. Your principal is protected, the rate never changes, and your money compounds tax-deferred the entire time.
How It Differs from Traditional Fixed Annuities
A standard fixed annuity may only lock your rate for the first year, then reset annually based on the insurer's discretion. A MYGA guarantees the same rate on day one as it does on the final day of your term — with no surprises.
The Tax Advantage
Unlike CDs, which generate a taxable 1099 every year whether or not you take money out, MYGA interest accumulates silently — no annual tax drag. You pay tax only when you withdraw, giving your full balance the chance to compound uninterrupted.
KEY FEATURES
What Makes Multi-Year Guaranteed Annuities Work?
Six features set MYGAs apart from other savings vehicles — and make them uniquely suited to the decade before and after retirement.
Rate Locked for the Full Term
Whatever rate you sign at, that's the rate you earn every single year. If you lock in 6.35% for five years, year five pays the same as year one. Market moves are irrelevant.
No resets. No surprises.Tax-Deferred Compounding
Your interest earns interest, year after year, without an annual tax bill reducing the working balance. Over a five- to ten-year term, this advantage can add thousands versus a taxable account earning the same rate.
Full balance compounds each year.Zero Annual Fees
MYGAs charge no management fees, no administrative fees, and no mortality and expense charges. The only cost-related feature is the surrender charge if you withdraw more than your free allowance early.
No M&E. No hidden charges.Principal Protection
Your original deposit cannot decline due to market activity. If you hold to maturity, you get back every dollar you put in, plus every dollar of guaranteed interest — contractually.
Contractually guaranteed.Free Annual Withdrawals
Most MYGAs allow you to take up to 10% of the account value each year without any surrender penalty. Some carriers also waive all charges for nursing home stays or terminal illness.
Up to 10% per year, penalty-free.Tax-Free Transfers at Maturity
When your term ends, you can move your full balance into a new annuity through a 1035 exchange without triggering any taxes. Your advisor handles the paperwork so you can focus on finding the best new rate.
1035 exchange. No taxable event.SIDE-BY-SIDE COMPARISON
MYGAs vs. Bank CDs
MYGAs and CDs are often compared because their structure is similar — both lock a rate for a fixed period. The differences, however, are meaningful.
| Feature | MYGA | Bank CD |
|---|---|---|
| Issuer | Insurance company | Bank or credit union |
| Typical 5-Year Rate | 5.50%–6.35% Higher | ~4.00%–4.50% |
| Annual Fees | None | None |
| Tax Treatment | Tax-deferred until withdrawal Advantage | Interest taxed annually (1099-INT) |
| Deposit Protection | State guaranty association + carrier reserves | FDIC insured up to $250,000 |
| Early Access | Up to 10%/yr free; surrender charge on excess | Forfeit months of interest |
| Term Lengths | 2–10 years | 3 months–5 years typically |
| Convert to Income? | Yes — annuitize or 1035 exchange | No |
| Probate Avoidance | Yes — via beneficiary designation | Depends on account titling |
$100K in a 5-Year CD at 4.15% (24% tax bracket)
~$117,300
After-tax value at maturity
$100K in a 5-Year MYGA at 5.50% (tax-deferred)
~$130,700
Tax-deferred value — roughly $13,400 more, even before the MYGA taxes are paid at withdrawal
TAX TREATMENT
Understanding How MYGAs Are Taxed
During the Term
Zero taxes owed. Interest accumulates inside the contract without generating any annual tax liability. Unlike CDs — which send a 1099-INT each year — your MYGA grows in silence, with your full balance compounding uninterrupted.
Non-Qualified Withdrawals
When funded with after-tax dollars, only the interest earned is taxable at withdrawal. Your original deposit returns to you completely tax-free.
- Principal returned tax-free
- Interest taxed as ordinary income at withdrawal
- No capital gains treatment — taxed at income rates
Qualified Withdrawals (IRA / 401k)
If funded through a rollover from a traditional IRA or 401(k), the entire withdrawal — principal and interest — is taxable as ordinary income, consistent with standard IRA distribution rules. Roth IRA MYGAs grow tax-free.
1035 Exchange at Maturity
At the end of your term, you can transfer the entire accumulated balance into a new annuity without triggering any tax event. This IRS-authorized exchange is a powerful way to shop for a better rate while preserving full tax deferral.
Early withdrawal penalty: Withdrawals of earnings before age 59½ may be subject to a 10% IRS penalty on top of ordinary income tax, regardless of whether the annuity is qualified or non-qualified. This content is for educational purposes only. Consult a qualified tax professional before making withdrawal decisions.
SUITABILITY
Who Should — and Shouldn’t — Consider a MYGA?
Strong Fit
- ✓ CD holders earning 4% or less who want higher guaranteed yields with comparable safety
- ✓ Pre-retirees 5–15 years from retirement wanting to lock in current elevated rates
- ✓ Investors moving out of equities who want a guaranteed return instead of market-dependent yields
- ✓ Anyone who has maxed out IRA and 401(k) contributions and wants additional tax-deferred savings with no contribution limits
- ✓ Retirees building a laddered income plan with staggered maturity dates
Likely Not the Right Fit
- — Anyone who may need full access to their principal before the term ends
- — Younger investors (under 50) with a long time horizon who can tolerate equity volatility for higher long-term returns
- — Those for whom FDIC-backed government deposit insurance is a non-negotiable requirement
- — Investors seeking upside beyond the guaranteed rate — a fixed index annuity may be a better fit
- — Those needing income immediately — a SPIA or deferred income annuity may be more appropriate
PROTECTION FRAMEWORK
How Your Money Is Protected
MYGAs are not FDIC-insured, but they sit within a multi-layered protection structure that has a strong track record across decades of carrier history.ADVANCED STRATEGY
The MYGA Laddering Strategy
Rather than committing a lump sum to a single term, laddering spreads your investment across multiple MYGAs with staggered maturities — creating regular liquidity windows while capturing strong long-term rates.
A $200,000 deployment spread across four MYGAs, as shown above, means a portion matures every one to two years. Each maturity is a decision point: withdraw for spending, reinvest at then-current rates, or roll into a new long-term position via 1035 exchange. The strategy blends the predictability of locked rates with meaningful periodic access to capital — without ever paying surrender charges.
END OF TERM
What Happens When Your MYGA Matures?
At the end of your term, you’ll typically have a 30-day window to choose your next move. Acting before the window closes prevents an automatic renewal at a rate you may not have chosen.
Withdraw Everything
Take your full principal and accumulated interest, completely free of surrender charges. The interest portion is taxable as ordinary income in the withdrawal year.
Renew with Same Carrier
Your carrier will offer a new term at their current rate. Always compare this against the broader marketplace before accepting — rates can vary significantly.
1035 Exchange to New Carrier
Transfer your full balance to a better-yielding annuity at a different carrier without triggering any tax event. Your advisor handles all paperwork.
Convert to Lifetime Income
Annuitize the accumulated value — converting it into guaranteed monthly payments for life or a set period. This is an option bank CDs simply cannot offer.
ADVANTAGES
What Are The Advantages of A MYGA?
- ✦ Rates typically 1.5–2 percentage points higher than comparable bank CDs
- ✦ No annual tax drag — interest compounds on the full balance each year
- ✦ No management, administrative, or mortality/expense fees of any kind
- ✦ Principal is protected from market losses when held to maturity
- ✦ Guaranteed rate is immune to interest rate drops during the term
- ✦ Tax-free transfers at maturity via 1035 exchange
- ✦ Passes directly to named beneficiaries, bypassing probate
- ✦ Simplest annuity product available — easy to understand and compare
COMMON QUESTIONS
FREQUENTLY ASKED QUESTIONS
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Annuities are insurance products, not bank deposits. They are not FDIC-insured or backed by any government agency. All guarantees are subject to the financial strength and claims-paying ability of the issuing insurance company. This page is for educational purposes only and does not constitute financial advice. Consult one of our licensed financial professionals before making any purchase decisions. Product availability and rates vary by state.
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