The Multi-Year Guarantee Annuity

Multi-year guarantee annuities (MYG) are designed with an interest rate that is guaranteed for the full-term of the annuity. Since a client can accurately predict the value of the annuity throughout the life of the contract, they are especially useful for reaching a specific value at some time in the future such as retirement. Of course, the MYG annuity is a type of Tax-Deferred Fixed Annuity, so most information you find on these types of annuities will be under info on Fixed Annuities.

What is a Tax-Deferred Annuity?

A tax-deferred annuity is a contract between you and an insurance company for a guaranteed interest-bearing policy with guaranteed income options. The insurance company credits interest, and you don’t pay taxes on the earnings until you make a withdrawal or begin receiving an annuity income. Your annuity contract earns a competitive return that is very safe.

Tax-Deferred?

Tax-deferred annuity means postponing your taxes on interest earnings until withdrawal at a future point in time. In the meantime you are able to earn interest on the money you may otherwise have paid in taxes. You can accumulate more money over a shorter period of time, which potentially will provide you with a greater income.

Tax Advantages

You pay NO taxes on funds in your annuity while your money is compounding. You may also pay a lower tax on random withdrawals because you control the tax year in which the withdrawals are made, and only pay taxes on the interest withdrawn. Tax deferral gives you potential control over an important expense – your taxes.

No More 1099s

There is no withholding tax on funds in your annuity while your account is compounding; it is completely tax-deferred. If you request a distribution (random withdrawal or annuity income), taxes will be withheld. Under certain circumstances, an election not to withhold can be made at the time you make your request. Because the interest is tax-deferred, it is not necessary to issue a Form 1099 while your money is compounding. Only when your interest is distributed (withdrawal or annuity income) will Form 1099 be sent, reflecting the amount of interest actually received.

Avoid Probate

If a premature death should occur, the accumulating funds within your annuity may be transferred to your named beneficiaries, avoiding the probate process. Like most assets, however, the annuity is part of your taxable estate. Your heirs can choose to receive a lump sum payment, or a guaranteed monthly income.

The Fact Is

The fact is, you should sit down with a professional who understands annuities and spend some time figuring out which type of annuity is best for your goals.