Transferring a Maturing CD to a MYGA
Today’s topic is transferring a maturing CD certificate of deposit into an MYGA. Should you do that? Could you do that? Can you do that? How can you do that? Is it suitable? Is it appropriate? Those are all good questions.
Now, Multi-Year Guaranteed Annuities are the annuity industry’s version of a CD. It’s not a CD, but it acts like one because you get a guaranteed interest rate for a specific period of time. The primary difference between a CD and an MYGA CD is we all know what those are. Nod your head.
Banks or brokers, firms, whatever issue you have. And there’s a specific period of time, and you get a guaranteed interest rate annually for that CD—same thing with Multi-Year Guaranteed Annuities. You can choose, a shorter term is two years, three years, four years, five years, six-year, seven-year, whatever. And you get a guaranteed interest rate annually for that specific period of time. FDIC, the best coverage on the planet, backs CDs.
F means federal. F means, "We’re going to freaking get you the money." Right? And then, MYGAs are backed by the claims-paying ability of the issuing annuity carrier, which is annuities issued by life insurance companies. And there are state-guarantee funds that back annuity purchases up to a certain dollar amount limit. If you want to go to that site and look up your state, you can: N-O-L-H-G-A- dot-com, N-O-L-H-G-A-dot-com.
At this current time, CD rates are not competitive in most cases with MYGA rates. Now you got to say, "Wait a minute, Stan the Annuity Man, America’s annuity agent®. Why is that? Why can't I get a good CD rate?" And the primary reason is the pricing of a CD is pretty much determined by current interest rates, the 10-year treasury, the 30-year treasury, whatever. And we know what those are at the time of this taping.
Now, with Multi-Year Guaranteed Annuities, even though that’s a CD-type of annuity, the annuity industry’s version of that, many different pricing mechanisms go into the guaranteed yield they’re offering. Life insurance companies sell life insurance. Right? They know when we’ll die, which is why annuity companies have big buildings. Life insurance companies have big buildings. They know when we're going to die.
They also sell lifetime income products, like immediate annuities and things like that. Same thing. It’s a life-expectancy-based product. They also have long-term bond portfolios, et cetera. And then, they look at the interest rates currently, as well. So they have four legs of the pricing stool, whereas CDs only have one. So when your CDs are maturing, and you’d love to roll it into another CD and get a good rate, and they tell you, "Well, the rate’s going to be 0.5," or something ridiculous, you have to kind of smack yourself and say, "I might want to look at these MYGAs.” On my site there are two dropdowns on my live MYGA feed on the Annuity Man®. You put in your state; you put in the duration you’re looking at, three years, four years, five years. And then, up pops the top contractual guaranteed maturities yield for your state for that specific duration that you’re looking at. And those change all the time. We have a live feed on our site 24/7/365.
You don’t have to sign up to get the rates. You can just put your state in the duration you’re looking at. You can change that duration and look at three, four, and five years. You can look at the laddering. But when we’re talking about whether you should roll a CD to an MYGA, I think it’s apples to apples. You should consider it.
The only thing you have to look at is the claims-paying ability of the carrier, because there’s no FDIC coverage. But let’s just say you have a CD and an IRA, a traditional IRA-type account. You can transfer that CD that’s matured to an MYGA IRA at the annuity company, a non-taxable event transfer. Doesn’t trigger any taxes. Now, if it’s non-qualified money, non-IRA money, and your CD matures, and you want to buy an MYGA because it has better rates, then you can use either wire the money, write a check, or whatever to... And the check being paid payable to the annuity company.
And in both cases where this IRA, Roth IRA, non-qualified non-IRA money, the money for the MYGA is held at the life insurance annuity company. All right? So let’s just say, for instance, you have CDs maturing at Fidelity, Vanguard, or the bank, or whatever, and you want to transfer that money to an MYGA. The money will go from Fidelity, Vanguard, and the bank to the annuity company. It’s going to be that.
Here’s the good part: someone asked me this the other day. I got a call the other day. It says, "Stan the Annuity Man, America’s annuity agent." Yeah, everyone does that. "Licensed in all 50 states. Suppose I transfer the money from my Fidelity IRA or my Vanguard IRA to the XYZ Annuity Company for the MYGA; once the MYGA duration term is over, can that money transfer back to my Vanguard and Fidelity account non-taxable event?"
Uh-huh. It can. It’s the same process but in reverse. If you’re going to transfer from Fidelity and Vanguard to the annuity, then the annuity company, with our help, will send the request to transfer to Fidelity and Vanguard. They transfer the money. But it also works in reverse if, after the duration of the MYGA, you want to transfer the money back.
When you’re talking about whether I should transfer a CD or that’s maturing to an MYGA, I think the key point here is that you still retain... I’m clapping now... you still retain full control of the money. You’re not annuitizing; you’re not turning on income; you are just looking for a better rate. You still control the principle. You still have full control of the asset. It might not be at the bank, Fidelity, Vanguard, TD, Schwab, or wherever. It’s going to be at the annuity company, because they’re offering a higher contractual guaranteed interest rate.
You need to know a few things about the differences between CD and an MYGA. This doesn’t make either better than the other. Yes, I sell annuities. Yes, I’m Stan the Annuity. Yes, I’m America’s annuity agent. But the truth is the truth. I love CDs; I just don’t sell them. The difference between, let’s just say you have a non-IRA account. In the business, they call it non-qualified. In English, it’s non-IRA.
With a CD and a non-IRA account, when you earn interest annually, you have to pay taxes on that interest annually. Nod your head. With a multiyear guarantee annuity and a non-IRA, non-qualified account, that interest grows tax deferred. Now, you've got to pay taxes on it when you eventually, or if you, take it out. But if you just want to let the interest grow and compound, it will do® that tax deferred. Does that make it better than a CD or an MYGA? No. That’s just a difference between the two.
59.5 Years Old
Another thing you need to know is that my CEO threw a shoe at me. I don’t know. In some cultures, that’s bad. But she threw a shoe at me and said, "Tell them this, Stan." And what she was saying was, remember this. When you’re pre-59 and a half, you have a non-qualified multi-year annuity guarantee. Pre-59 and a half years old, if you take money out, there’s a 10% IRS penalty.
Hello? You need to know that. That doesn’t mean you can’t buy one pre-59 and a half. But you must understand that you must wait till your past 59 and a half to take money out penalty-free. And those are the nuances that only Stan, the Annuity Man®, can explain so that you and I both understand it and so that you can make an informed decision on your terms and your timeframe.
How It Works?
So one of the things, when you go to my site at the Annuity Man, you’re going to pull up the live MYGA feed, you’re going to look at the rates, and then you’re going to schedule a call with me. We’re going to discuss, "All right, you like these types of MYGAs, et cetera, your CDs are maturing. Will we transfer them from an IRA, Roth IRA, or a non-qualified non-IRA?"
And how that all works. And then, we're going to talk about duration and laddering. I’m going to bring up all kinds of strategies that you might not have thought of so that you are fully informed on how to structure your MYGA purchase if it makes sense for you to go from a CD maturing to a multi-year guaranteed annuity.
Hey, one last thing. This has been a great topic because many of you have maturing CDs. You don’t know what to do with them; the banks aren’t giving the rates that you want. It’s probably going to be a while until you get those rates. And now, you’ve got to pivot in your mind to say, "Wait a minute. I’ve never bought a multi-year guaranteed annuity, the annuity industry’s version of a CD. But I might need to look at that because I need yield. I need guaranteed yield. I need contractual guarantees."
As I said, you can go to my site, the annuityman.com, and pull up the MYGA feed. You can schedule a call with me. But if you want to take a step before scheduling a call, I would encourage you to scroll down, and I’m proud to offer, for free, the How to Buy an Annuity ebook. You can download it, and you can read it. There are all kinds of good stuff. We’ve worked hard. Kudos to my PR team and my CEO for putting all this together. But I would encourage you to do that.
We also have on our site just how the application process works. If you want to say, "Well, how are they doing this? Stan, the Annuity Man. America’s annuity agent is licensed in all 50 states. I live in Idaho, and I’m talking to the Annuity Man, wherever he is at that point in time. How does this all work?" It explains the virtual process of how the application works and how we do not sell or share any information.
It’s very, very professional. You will love doing business with us. But we do inform you and educate you on how the process works. And the How to Buy an Annuity ebook is fantastic. It will let you know how the process works, how you will interact, and how we will work with you in the future.
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.