A MYGA, or Multi-Year Guaranteed Annuity, is a very simple, easy-to-understand, CD-like investment geared for retirement savings. As compared to CDs, MYGAs offer higher crediting rates over longer time horizons and tax-deferred growth. More about each of these:
Simple & Easy-To-Understand
Like with a CD, a MYGA investment will earn a fixed, guaranteed rate for a specified period of time. You decide how much you want to invest and over how many years. Your money will grow according to a fixed, guaranteed interest rate, which is typically greater the longer you are willing to lock away your money. Assuming you don’t plan to access your money during that time, that’s all you need to know. If you do end up wanting access to your money, there are some contract terms to understand.
Short-Term, Low Risk Investment
Typically, MYGA investments range from 3 years to 10 years in duration and can be purchased with $2,500 or more. MYGAs are sold by insurance companies whose credit ratings reflect their financial strength. For the lowest risk exposure, buyers choose insurers rated A and higher. Its low risk profile and short term investment horizon make it a good place to park the money you plan to use in the near future.
Tax-Deferral On Retirement Savings
MYGAs offer tax-deferral, meaning that you’re not taxed on the interest you earn until you cash out or start taking withdrawals. This benefit is only afforded to MYGAs by the government because they’re meant to be used as retirement savings vehicles. The catch, then, is that you’ll be charged a 10% penalty if you withdraw anything before age 59½. So, use MYGAs for retirement savings. If you invest in a MYGA that matures before you turn 59½, you’ll be able to roll it over into another MYGA or other annuity with the same tax status. Note that this benefit is only significant if the MYGA is purchased with after-tax savings. If instead it’s purchased in an IRA or 401(k), tax-deferral is already in effect.
Enhanced Crediting Rates vs. CDs
All else being equal, MYGAs will typically offer higher crediting rates than CDs for the same investment term. Plus, tax-deferral means that your money grows faster via additional compounding of interest.
Learn more about MYGAs, how they work, and how they add value to your portfolio in the MYGA Guide.