How Do Multi Year Guaranteed Annuities (MYGAs) Work? Annuities can be complicated. Our free and quick video series makes them easy to understand. Learn how a MYGA fits into your retirement plan. Or enroll in the interactive online course with virtual quizzes on our consumer-friendly education center.
An annuity is, very broadly speaking, an insurance product that can help turn your savings into an income stream and make your financial plans during retirement more predictable. An annuity is a contract between you and an insurance company. You make a lump sum payment, or give the carrier a series of payments, and in return, you obtain regular payments at some point in the future.
A fixed annuity is an accumulation product offered by an insurance company that is tax deferred as long as the money used is non-qualified. Fixed annuities provide a guaranteed rate of interest for a specified period of time, which may appeal to individuals with a low risk tolerance, and those who want certainty about what rate they can earn for a period of time.
Fixed annuities have defined guaranteed interest periods. During the guaranteed interest period, the insurance company will credit a guaranteed rate of interest on your contract value for a set period of time. Insurance companies typically offer guaranteed interest periods between 3 and 10 years, but some offer many more options.
Depending on the state you live in, after purchase, you will have between a 10 and 45 day period with some limited exceptions, known as the free-look period, to further review your financial decision and ensure it’s the best option. If you decide to change your mind during this period, you can return the contract and receive a complete refund without penalty.
You can withdraw money from your annuity at any time. It’s important to note, however, that withdrawing money from your annuity early may result in surrender charges, a negative or positive market value adjustment (MVA), pro-rated fees, or less interest credited to your contract.
While you are encouraged to avoid withdrawals until your annuity has completed its surrender period, withdrawals are permitted under certain circumstances without incurring a surrender charge. Surrender charges are assessed if you choose to take a withdrawal in excess of any free withdrawal amount allowed under your contract.
Many annuity contracts contain an adjustment for changes in market conditions that applies when you withdraw money. A market value adjustment, or MVA, is an increase or decrease in the amount of money you receive when you take a withdrawal in excess of the free withdrawal amount, or fully surrender your contract.
Common options to withdraw without penalty include any amount permitted under the annual free-withdrawal amount benefit, a required minimum distribution requested after the first calendar year, income benefits provided by lifetime income rider, and by annuitizing your contract.
Upon reaching age 72, the IRS requires that you withdraw at least a minimum amount each year from amongst your IRAs and retirement plans—except Roth IRAs—and that you pay ordinary income taxes on the taxable portion of your withdrawal.
Generally, annuities offer three different methods to convert the contract value into income: traditional annuitization, systematic withdrawals, and the election of guaranteed income riders. Guaranteed income riders are not commonly offered on MYGAs.
You can leave a legacy for your loved ones with a fixed annuity. You determine who receives the death benefit by designating beneficiaries when you purchase the contract. That person or persons, who could be a spouse, child or other loved one, will be able to receive benefits after you die.
If your spouse is designated as the beneficiary and you were to pass away, your spouse can continue the contract as the new owner in lieu of receiving the death benefit. The Internal Revenue Code has distribution at death requirements that may affect the terms of the contract upon spousal continuation.
Important Disclosures
Product features and availability may vary by state. Guarantees are based on the claims-paying ability of the issuing company.
Nassau single premium deferred fixed annuities (18IFDAP, 18FADTCP, ICC18IFDAP, ICC18IFDANP,ICC18FADTCP) are issued by Nassau Life and Annuity Company, Hartford, CT. Nassau Life and Annuity Company is not authorized to conduct business in ME and NY, but that is subject to change. In New York, annuities (17IMGA) are issued by Nassau Life Insurance Company, East Greenbush, NY. In California, Nassau Life and Annuity Company does business as “Nassau Life and Annuity Insurance Company.” Nassau Life and Annuity Company and Nassau Life Insurance Company are subsidiaries of Nassau Financial Group. The insurers are separate entities and each is responsible only for its own financial condition and contractual obligations.
This material is intended for educational purposes only and is not meant to provide investment, tax or financial planning advice. Nassau does not provide individual tax, financial or investment advice or act as a fiduciary in the sale or service of insurance contracts. Please consult your personal tax or financial advisor for assistance. Nassau has a financial interest in the sale of its products. Please consult the applicable product and rider disclosures for a full description of features, benefits, and restrictions.
The videos shown as a part of this series are for general information purposes only. The features and applicable conditions discussed in the above videos and attached glossary may vary by specific product offering. Completion of the informational series and accompanying questionnaires does not certify that an individual has completed all necessary requirements to make a suitable purchasing decision. Additional information beyond what is provided in the video series contained herein may be required. Please consult with a financial professional for additional information before making a purchasing decision.
Insurance Products: Not FDIC or NCUAA Insured, No Bank or Credit Union Guarantee.
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