So you're shopping for the highest MYGA rates? Let's talk about how to find the best and highest MYGA rates because that's how you need to look at them. You need to find the best rates available for your specific situation.
For the record, Multi-year guarantee annuities are also known as MYGAs. MYGAs are fixed annuities, and fixed annuities are regulated at the state level. But it's a little bit more important than that. You need to know what you're buying because annuities are contracts, so you need to know how the contract works and how MYGAs work because they're not all the same. There are hundreds of types; therefore, you need to know the good, the bad, the limitations, how they work, the similarities, and the differences between them and a CD.
I think annuities should be simple, and you should understand them for what they contractually do. You can't hate annuities and love CDs because multi-year guarantee annuities, MYGAs, are, in essence, the annuity industry's version of a CD. It pays you a specific rate for a specific period, like a CD. The difference, primarily, is that the federal government, FDAC, backs CDs. If you're buying MYGAs, you should look at the claims-paying ability of that carrier. That's very, very important.
There are state guarantee funds involved, but primarily, you need to look at the claims-paying ability of the carrier you're choosing to guarantee that MYGA rate. By the way, you can have MYGAs and CDs in IRAs, non-IRAs, Roth IRAs, etc.; it just comes down to the taxation of when you pull the money out. But in a non-IRA setting, you have to pay taxes annually. With multi-year guarantee annuities, that interest can compound tax-deferred, and that's a big deal. Although it doesn't always mean it's better. It’s just that's the way the rules are. So if you want a guaranteed interest rate, but you don't want to pay those annual taxes on the interest, you can buy an MYGA, and you defer those taxes until you take the money out at that time.
So with that being said, where would you use them together? I have what's called a fixed rate ladder that I use. I don't sell CDs, but I tell you to look at bankrate.com or shop local banks and credit unions for the best rate. But typically, with CDs, the rates are the best two years or two and a half years in the end. Three years and out, MYGA rates are fairly competitive. That doesn't mean you're not going to find a CD that might beat a three-year MYGA, but generally, multi-year guarantee annuities offer the best and highest contractual rates about three years and out. So if someone wanted to do a five-year ladder, you'd split the money evenly and do a CD for one year, a CD two-year, a three-year MYGA, a four-year MYGA, and a five-year MYGA. That would be a fixed rate ladder and how they would work together.
Now, let’s move on to some of the limitations and benefits of MYGAs. One of the limitations, in my opinion, is some MYGAs allow you to peel off interest if you want to do that. Some don't. It'll say either you can peel off interest or you cannot. Another limitation is not all carriers offer MYGAs. The surrender charges are high during the specific time you're locking in the rate, but after that, there are no surrender charges for that specific period. On the other hand, the benefits are easy to understand. MYGAs work like a CD with no moving parts, no market attachments, and no annual fees.
A guy called me the other day and was tired of being taxed to death. Well, you can't circumvent taxes. We all know that. But what I suggested is that he could buy multi-year guarantee annuities and a non-IRA account. You can transfer it to another annuity at the end of the period that you locked it in. So that's a 1035 transfer, a non-taxable event, IRS approved. Section 1035 of the IRS code says you can transfer one annuity to another without a taxable event. So that's what he ultimately decided to do. We built a ladder for him, so every time one of his MYGAs mature, we're going to roll it and keep pushing the tax deferral.
On another note, if you want to create a lifetime income stream, you can convert a multi-year guarantee annuity with most carriers into an immediate annuity. Let's just say, for example, you had a five-year MYGA, it was paying 3.5% or 4%, choose a percentage, and that at the end of the duration, you said, "You know what? Instead of rolling it to another multi-year guarantee annuity, let's roll it into an immediate annuity because I kind of need income at that point." You can do a 1035 transfer, a non-taxable event. Then, we'd shop for the highest contractually guarantee single premium immediate annuity payout for your specific situation. So pretty flexible. But once again, there's no difference from the standpoint of functionality with CDs and MYGAs. You just have to shop for the highest contractual guarantee based on the duration you want to lock-in.
We have committed ourselves to educate the public on that evil annuity curse word that everyone says, "I hate annuities." If you say you hate it, how can you hate a MYGA? It's like a CD, and no one can hate CDs.
Never forget to live in reality, not the dream, with annuities and contractual guarantees! You can use our calculators, get all six of my books for free, and most importantly book a call with me so we can discuss what works best for your specific situation.