If someone informed you that, as of January 2024, you could invest in a financial product offering a fixed, guaranteed return of nearly 6% for up to 10 years, would you consider it? If your answer is yes, continue reading about the Multi-Year Guaranteed Annuity, or MYG Annuity for short.
Due to current financial conditions, fixed guaranteed returns approaching 6% are now available for 3, 5, 7, and 10 years. As a discerning investor, you may be skeptical, sensing that such an opportunity sounds too good to be true. Consequently, you start scrutinizing the details, searching for the catch.
The catch is this: a part of the name of the investment includes a term with a negative connotation — “annuity.” I understand that this term may evoke a negative sentiment, but if you can keep an open mind and delve into the specifics, you might find it worthwhile.
This is not your grandfather's annuity, with its associated high fees and uncertain returns. This type of annuity is referred to as a Multi-Year Guaranteed (MYG) Annuity, and for some of you reading this, it could represent the best financial opportunity since sliced bread.
The Multi-Year Guaranteed (MYG) Annuity)
MYG Annuities bear a resemblance to CDs in various aspects: both offer a fixed, guaranteed rate of return throughout the investment period. So, let me pose a question: are you apprehensive about CDs? If not, read on.
Consider Joe, who, upon deciding to retire early, holds a $900,000 balance in his 401(k) account. Wisely, Joe chooses to transfer his 401(k) balance to an IRA at Schwab, Vanguard, or Fidelity.
Upon discovering MYG Annuities, Joe recognizes that a nearly 6% fixed, guaranteed return could complement his other retirement investments, such as IRAs, real estate, and ETFs. All Joe needs to do is research available MYG product offerings and the current rates that insurance companies are providing for his state of residence. This information is readily accessible online.
Joe learns that by investing in MYG Annuities, he is effectively ensuring that his untouched $900,000 initial investment will grow into a substantial sum exceeding $1.5 million in 10 years. How straightforward and uncomplicated is that? The power of compound interest handles the heavy lifting for Joe.
An additional advantage of this annuity is that the gains in Joe's account remain tax-deferred until he decides to withdraw them.
State Guaranty Fund For The MYG Annuity
Joe understands that although his annuity is not guaranteed by the FDIC like a bank CD is, most states have a State Guaranty Fund that guarantees up to $300,000 coverage per annuity.
Hence, Joe elects to split his $900,000 initial investment into 3 different annuity contracts issued by 3 different insurance companies. Go to www.nolhga.com to check on the coverage for your particular state.
If Joe were to decide in the future that he would like to withdraw a small portion of his contract balance, Joe knows that the majority of MYG Annuities allow for a 10 percent annual free withdrawal (without penalty).
Can Convert MYG Annuity To A Roth IRA
So time goes by, and now Joe realizes that he would like to convert his IRA MYG Annuity to a Roth. Simple enough! Joe contacts his carrier and asks them to perform a Roth IRA conversion. Joe will be jumping for joy as he realizes that this action will essentially turocharge his retirement savings.
If you've read this far, what are you waiting for? MYG Annuity rates for new contracts may change on a frequent basis, so if a nearly 6% contractually guaranteed rate sounds good to you, I urge you to act soon. You would have to go back in time about 20 years to find MYG Annuity rates this high.
MYG annuities are offered without a sales load or any direct cost to you at any time. All of your investment works for you. It should be noted that the same tax deferral achieved by Joe is available to all MYG Annuities, whether they are IRA accounts or not.
– Tom Stieber
Related post: Grantor Retained Annuity Trust (GRAT)
Tom Stieber is a Financial Samurai reader and newsletter subscriber. He is a retired reader who rolled significant sums from his 401(k) into IRA MYG annuities.