MYGA

[hotwired]

I'm an experienced investor but a COMPLETE newbie with MYGAs. Picture someone who's been vacationing in hotels suddenly deciding to get a timeshare...that level of "stuff to learn".

I'm realizing that MYGA's are offering superior rates further out, like 5 years plus. I've never bought one before but am thinking of replacing some of my current bond ladder with MYGA's. I've got a big chunk devoted to bond ladder, consisting of TIPs, Nominal treasuries and a couple of agency bonds, supplemented with Bullet Shares IG ETFs. But sheesh, the MYGAs at 5 years plus are 5.5% and higher for 7-10. This is equal to the BulletShares bond ETFs! And I can control the tax hit a little easier.

So I'm thinking of replacing at LEAST the investment grade corporate bulletshares funds, and maybe more. Should I just pick an A or above rated company online and get the ball rolling or is there some more due diligence? Is there anything to miss here? If the company goes "belly up" I believe the principal is covered by insurance?

TIDBITS: 58 & 57 year old couple, 8-10 years in salary covered in bonds (TIPs, notes, agencies and funds) plus 2 apartment buildings paying us 50% of our salary (if needed), so our "ladder" is flexible.

 

[Koolau]

Not an expert but I've had several MYGAs over the years. Big issue is getting your money out early if you need it. Most MYGAs have a schedule of how much you can take out after a certain period - maybe 10% after 1 year and 20% after two years, etc. Check the features and rules on any MYGA. Biggest issue with MYGAs is that they are for longer periods than many CDs AND they have withdrawal rules much less favorable than CDs (usually, a CD is 90 days interest loss for any withdrawals or cancellation.) MYGAs are much "worse" in that department. BUT they do typically offer 1% or more advantage over current CDs. I wouldn't worry too much about the financial health of the company IF the rating is average or better though YMMV.

BY the way, I still have a couple of SPDAs from 30 years ago (Similar to SPDAs) Single Premium Deferred Annuity. I don't think these are offered under that name any more. MYGA has (I believe) replaced this category of investment. Hope this helps a bit. Others here much more knowledgeable than I.

 

[Jerry1]

No expert but I have one. Got it a few years ago when 3.5% for 7 years seemed like a good deal. Who knew rates would go up so much. Anyway, there are two things that I wish I better understood before I bought mine. Many will let you take out something like 10% per year after the first year or two. I thought they all did that and came to understand that mine did not allow for any principal withdrawal without penalty. And, penalties are excessive. I’m in my fourth year and if I cashed out, I’d barely get my principal back.

Still, I don’t regret the purchase but I should have been better educated on my particular contract.

One thing that I can do is take the interest out every year. At least that’s something. I can only do it on the anniversary date and I need to give them 30 days notice. I don’t bother because I don’t need the money and figure I may as well let it compound.

 

[Texas Proud]

Why not buy a bond or even preferred shares? You do not have any of those restrictions mentioned...

 

[GenXguy]

Why not buy a bond or even preferred shares? You do not have any of those restrictions mentioned...

I need to defer income. I can do that with an I Bond, but I'm limited to $10,000 per year. And I want a guaranteed return trying to keep up with inflation.

 

[TheWizard]

I need to defer income. I can do that with an I Bond, but I'm limited to $10,000 per year. And I want a guaranteed return trying to keep up with inflation.

A guaranteed return may be limiting your upside.
But do as you please...

 

[GenXguy]

A guaranteed return may be limiting your upside.
But do as you please...

I'm diversified already for the upside.

 

[Bruno]

MYGA are great but i have one coming due in July with $76k of interest and need to figure out the best way to get out. They dont pay anything if you annitize them but it does spread out the interest.

 

[hotwired]

I need to defer income. I can do that with an I Bond, but I'm limited to $10,000 per year. And I want a guaranteed return trying to keep up with inflation.

I've got a ton of iBonds via myself, wife and 3 LLCs, plus some gift box purchases 120k with 70 at 5.27 (1.3 30 year inflation lock), and 50k at 4.27 (.9 inflation lock). That's our emergency stash. I very well may cash in the 50k .9 batch and use for MYGA

 

[ShokWaveRider]

MYGA are great but i have one coming due in July with $76k of interest and need to figure out the best way to get out. They dont pay anything if you annitize them but it does spread out the interest.

You can just terminate the contract and have the money deposited at maturity at no cost, you do not have to annuitize them. They are just like any other bank CD. At maturity YOU have to initiate the total liquidation through your broker or wherever you purchased the annuity from, including all the principal and interest. Talk to your broker a couple of weeks before maturity. You can also call the insurance company and ask them what the process to redeem all funds would be.

 

[hotwired]

You can just terminate the contract and have the money deposited at maturity at no cost, you do not have to annuitize them. They are just like any other bank CD. At maturity YOU have to initiate the total liquidation through your broker or wherever you purchased the annuity from, including all the principal and interest. Talk to your broker a couple of weeks before maturity. You can also call the insurance company and ask them what the process to redeem all funds would be.

Correct me if I'm wrong and I very well could be, but I believe with mygas you can also do a tax deferred roll over to another annuity MYGA or other, via a 1035 exchange?

 

[ShokWaveRider]

Correct me if I'm wrong and I very well could be, but I believe with mygas you can also do a tax deferred roll over to another annuity MYGA or other, via a 1035 exchange?

You can rollover them over to other MYGAs yes at maturity.

 

[Lucie]

Be aware that if you redeem them at maturity before 59 1/2, there is a 10% IRS penalty. Even for after tax accounts.

I found this out the hard way when my Fidelity advisor recommended cashing them out at maturity. If she put them in my husband’s name as the annuitant, we would have saved a nearly 4 k tax penalty since he is over 59 1/2. She apologized, saying that she didn’t realize, but Fidelity won’t make me whole or even offer me a retention bonus in good faith.

 

[pb4uski]

Why not buy a bond or even preferred shares? You do not have any of those restrictions mentioned...

+1. I've been buying investment grade preferred stocks with 6-8+% yields. They are very liquid if I need that money. Also, if rates decline as expected then I'll have some interest rate gains. One of my favs is ALL/PRB from Allstate yielding over 8%.

 

[GenXguy]

You can rollover them over to other MYGAs yes at maturity.

But if you want to start taking funds while avoiding the full interest income tax hit, can't you roll it over to a fixed annuity that starts paying out? And in that case, would the fixed annuity be paying interest first (as earned in MYGA) before it ever pays back any of the principal? And the fixed annuity would still earn interest as well?

 

[pb4uski]

IIRC if you annuitize whether for a period certain or for life, the benefit payments are part interest and part principal, if you do non-systematic withdrawals then it is interest first followed by principal.

 

[jazz4cash]

I started using MYGAs to complement varous fixed income securities about 3 yrs ago. Blueprint Income, Stan Annuity Man, and immediateannuities.com are 3 websites with many resources for MYGA shoppers. Before I started using those sites I was drinking the ‘all annuities are bad’ flavored koolaid.

 

[Luvtoride]

We started using MYGAs 4 years ago when interest rates were almost zero. The 3.5% for 3 years to get us to retirement with that amount of “safe money” was exactly what we needed.
As it turned out we haven’t needed the money yet and we rolled it over at higher rates and with 20% withdrawal allowance after 1 year.
Simple, safe and effective instruments to use for a portion of your retirement plan.
Any A rated insurance company or better is fine!