A Multi-Year Guaranteed Annuity, or MYGA, is one of the simplest products in the annuity market. It is designed for people seeking principal protection and a guaranteed interest rate over a defined period.

The Definition

A MYGA is a fixed annuity contract issued by an insurance company that pays a guaranteed interest rate for a set number of years. The growth is tax deferred. At the end of the guarantee period, the contract owner has several options for renewing, surrendering, or transferring the contract.

There is no market index. No participation rate. No cap or spread to track. The rate is the rate, and it is locked for the full guarantee period. A five-year MYGA issued at a 6.25 percent interest rate pays 6.25 percent for the full guaranteed rate period.

How a MYGA Compares to Other Common Options

MYGA vs. CD. Both pay a fixed rate for a fixed term. A MYGA grows tax deferred, so interest is not taxed every year. MYGAs are backed by the financial strength and claims paying ability of the issuing insurance company and, subject to state law, protections provided by each state's guaranty associations. They are not FDIC insured like CDs.

MYGA vs. Fixed Indexed Annuity. A fixed indexed annuity links growth to a market index, with caps and participation rates that limit upside while protecting principal. A MYGA is not linked to an index. Buyers who want a defined interest rate typically prefer a MYGA. Buyers who want equity linked returns with principal protection typically prefer a fixed indexed annuity.

MYGA vs. Variable Annuity. A variable annuity places money in subaccounts that move with the market, creating the potential for gains and losses. A MYGA is designed to protect principal while providing a guaranteed interest rate, backed by the claims paying ability of the issuing insurance company.

Who a MYGA Tends to Fit

  • Money the owner wants to protect with guaranteed returns rather than grow aggressively.
  • A time horizon that matches the guarantee period.
  • CD or money market positions earning below current MYGA rates.
  • The conservative bucket of a broader retirement allocation.

How the Mechanics Work

Interest is credited daily and compounds annually throughout the guarantee period while the guaranteed interest rate remains locked for the selected term. Because earnings grow tax deferred, owners do not owe income tax on interest until money is withdrawn. You can estimate how a guaranteed rate compounds over a term with our MYGA Calculator. 

Can You Lose Money in a MYGA?

A MYGA is designed to protect principal while crediting a guaranteed rate of interest. Like all annuity contracts, guarantees are backed by the financial strength and claims paying ability of the issuing insurance company. Withdrawals above any applicable free withdrawal amount or surrendering the contract before the end of the guarantee period may result in surrender charges and could have tax consequences.

What Happens at the End of the Term

At the end of the guarantee period, you have several options. You can surrender the contract and receive the full value, make a partial surrender and renew the remaining balance for a new guarantee period, or renew the entire contract at the then current guaranteed interest rate. You may also choose to complete a 1035 exchange/transfer/rollover into another eligible annuity contract, allowing you to transfer the funds without triggering a current taxable event.

Where Wichita National Fits

Wichita National issues the Security MYGA with 3-, 5-, 7-, and 10-year guarantee periods, a $10,000 minimum premium, and a $1,000,000 maximum premium.

MYGA TAX FAQ

How is a MYGA taxed?

MYGAs generally grow tax deferred, meaning interest is not taxed as it is credited. Amounts withdrawn that are considered taxable earnings are generally subject to ordinary income tax. Tax treatment depends on the contract and individual circumstances, so consult a qualified tax professional.

Are MYGA withdrawals taxable?

It depends on how the contract is funded.

Non-qualified (funded with after-tax dollars): Only the earnings are taxable as ordinary income. Withdrawals are generally treated as coming from earnings first; once earnings are exhausted, remaining amounts are a return of premium and are not taxable.

Qualified (funded with IRA or other pre-tax retirement dollars): The entire amount withdrawn is generally taxable as ordinary income.

Taxable amounts withdrawn before age 59½ may be subject to an additional 10% federal tax unless an exception applies.

Wichita National does not provide tax advice. Individual circumstances vary. Consult a qualified tax professional.

Do you pay taxes on a MYGA every year?

Generally, interest credited to a MYGA is tax deferred, so it is not taxed annually as it accumulates. Taxes generally become relevant when taxable amounts are distributed. Individual tax treatment varies, so consult a qualified tax professional.