A Multi-Year Guaranteed Annuity (MYGA) is a single premium deferred annuity contract that is intended to be a competitive short-term (1-10 years) funding vehicle. Like a bank certificate of deposit (CD), the premium that you pay into a MYGA is locked up in the sense that there would be penalties due if the owner withdraws funds before the end of the 1-10 year guarantee period. There is even a 10% tax penalty if you are not at least 59 1/2 when you withdraw. Understanding the nuances between a MYGA vs fixed annuity can help you make a wiser investment.
MYGA vs Fixed Annuity
The good news is that, unlike a CD, the buildup of value in an annuity is not taxed until it is withdrawn. Furthermore, at the end of each guarantee period, you can shop for a new MYGA with better rates and a new guarantee period and exchange your old MYGA for this new MYGA tax-free. So, the buildup in value in your MYGA can remain untaxed until you either start withdrawing the value or annuitize the balance into a fixed set of payments.
A regular Fixed Annuity contract is also a single premium deferred annuity like a MYGA but more of a long-term funding vehicle with a long-term (10+ years) fixed-rate buildup guarantee. Since a Fixed Annuity policy has a longer-term guarantee, your funds are locked up by surrender charges for a longer period.
MYGAs are short-term funding contracts like CDs, but with the added benefit of tax deferral. MYGAs yield a predetermined rate for a predetermined period of time. When comparing an MYGA vs fixed annuity benefits of CDs, most life insurance companies offering MYGAs pay an agent or advisor commission which are built into the pricing of the contract. Pillar Life Insurance does not pay commissions and passes that savings on to its policyholders in the form of providing better benefits to its policyholders and holding higher-quality assets to fund its policy obligations.
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If you have any questions or concerns regarding which option is going to be in the best interest of your personal financial portfolio, contact Pillar Life Insurance. We can quickly and easily walk you through your options in a seamless manner, helping you to understand which options will be the most useful for your situation.