Any reason not to do a MYGA?

[CautaServans]

Welcome to MYGA world. Turns out not all annuities are terrible after all. Who is the issuer and what terms did you get if you don't mind sharing?

I don't mind sharing at all.

My contract is with Midland National. It's 5.1% for five years with the option to pay out in full and be taxed, roll to another MYGA or pay out over five, 10, 15, or 20 years.

Here's the language on surrender charges:

"The LiveWell Guarantee Max is a longterm Contract and a surrender charge up to 9% as well as a market value adjustment (MVA) will apply during each surrender charge period to any full or partial surrender that exceeds the penalty-free withdrawal amount."

I think it is pretty standard from others that I saw. Is there anything I am missing?

 

[CautaServans]

Congratulations, I too added my first MYGA to my short term bucket this spring. I have set aside moneys for the next 4 years, which included Money Market for first year (0), then CD's for years 1 and 2, then MYGA for year 3.

3 year was the shortest term MYGA and fit what I needed. If my retirement accounts do well when the first CD matures then I'll draw from the retirement accounts and roll that CD over into a MYGA.

I am considering pushing this to five year MYGAs, and keep a rolling bucket of 5 year expenses, but had to dip my toes in the MYGA waters somewhere to get a feel for them.

It was quite different thand purchasing a CD, with contracts and signatures, and new account (at New York Life for my MYGA), but seems to have gone well. I have done this within an IRA, and the MYGA balance shows up in the IRA viewing it through Fidelity. I can log in directly to New York Life as well, but it is good that Fidelity has the view wired in.

For someone who has added a first MYGA and who is "dipping" their toes to see what it is like, you seem to have a firm plan!

I like how your coverage for the first five years can draw from taxable accounts and have these stable accounts doing their job for you, if that's the plan. May I ask if the market is having a massively good year, like the last year or so, and you have these safer investments, will you skim the froth from investment accounts and just keep paying these safer one forward with an eye to the inevitable down year or so?

I could not agree more about the rigmarole to open a MYGA versus a CD. I also took a mental note at the large sum required and extra money needed to be proven to open one. It's a pretty rarified investment option that people from my family would probably have loved to have but would not have been able to afford when I was growing up.

 

[jazz4cash]

When your MYGA reaches the end of the guarantee period or you choose to take a free withdrawal you will be reminded once again that you have a MYGA from an insurance company, not a CD from a bank or broker. Things just seem to move slower and require more forms than what we have become used to in the internet age.

 

[CautaServans]

When your MYGA reaches the end of the guarantee period or you choose to take a free withdrawal you will be reminded once again that you have a MYGA from an insurance company, not a CD from a bank or broker. Things just seem to move slower and require more forms than what we have become used to in the internet age.

Thanks for the heads up!

 

[Bruno]

When your MYGA reaches the end of the guarantee period or you choose to take a free withdrawal you will be reminded once again that you have a MYGA from an insurance company, not a CD from a bank or broker. Things just seem to move slower and require more forms than what we have become used to in the internet age.

I had one MYGA that only had a 30 day window when it came time to renew or take the money and run. After that 30 days it went back to a 5% surrender charge. MYGA if renew in taxable account the interest can amount up to quite a bit in 10 years. It was my plan to take the FREE 10% on a couple MYGA to reduce the shock. It just didnt work out. Good Luck!!

 

[sdawson]

I like how your coverage for the first five years can draw from taxable accounts and have these stable accounts doing their job for you, if that's the plan. May I ask if the market is having a massively good year, like the last year or so, and you have these safer investments, will you skim the froth from investment accounts and just keep paying these safer one forward with an eye to the inevitable down year or so?

If the market is up (or stable even) in a year, I will draw from the investments, yes, and roll over the CD. If not I will put the CD into a money market fund and use it.

However I don't have enough in taxable accounts to carry me through. I need to withdraw from my IRA. I need to withdraw $4k per month (about $50K/year) from my IRA at this stage in retirement. I am 63 and the earliest I want to start social security is 67, so I needed to ensure the next four years. So what I did was this.

Moved $250K out of stock funds and divided it as so:

$50K - money market (year 0)
$50K - 1 year CD
$50K - 2 year CD
$100k - 3 year MYGA

I am withdrawing monthly from the money market fund (paying taxes on it at withdrawal time).

When the 1 year CD matures, if the stocks are up or stable, I'll transfer another $50K from stocks to the money market fund to fund the next year, and roll over that CD to another 3 year MYGA to continue the ladder.

Rinse and repeat.

BTW the reason for the size of the 3 year MYGA was to get the 'Jumbo Rate' at that 100K threshhold, and also, my spouse will have also quit work by that time, so our monthly withdrawals will need to go up from $4k/month to $6k/month.

On a side note, I will also be doing my first Roth conversion this year. I'll be on the long term plan, doing conversions each year up to a specific threshhold each year before I start social security -- which I can ideally delay til age 70, but we'll see.

 

[CautaServans]

If the market is up (or stable even) in a year, I will draw from the investments, yes, and roll over the CD. If not I will put the CD into a money market fund and use it.

However I don't have enough in taxable accounts to carry me through. I need to withdraw from my IRA. I need to withdraw $4k per month (about $50K/year) from my IRA at this stage in retirement. I am 63 and the earliest I want to start social security is 67, so I needed to ensure the next four years. So what I did was this.

Moved $250K out of stock funds and divided it as so:

$50K - money market (year 0)
$50K - 1 year CD
$50K - 2 year CD
$100k - 3 year MYGA

I am withdrawing monthly from the money market fund (paying taxes on it at withdrawal time).

When the 1 year CD matures, if the stocks are up or stable, I'll transfer another $50K from stocks to the money market fund to fund the next year, and roll over that CD to another 3 year MYGA to continue the ladder.

Rinse and repeat.

BTW the reason for the size of the 3 year MYGA was to get the 'Jumbo Rate' at that 100K threshhold, and also, my spouse will have also quit work by that time, so our monthly withdrawals will need to go up from $4k/month to $6k/month.

On a side note, I will also be doing my first Roth conversion this year. I'll be on the long term plan, doing conversions each year up to a specific threshhold each year before I start social security -- which I can ideally delay til age 70, but we'll see.

Thanks for this explanation. I had been thinking about early retirement since about 2015, but in 2018, I started taking action, and because I had been saving above average all along, deploying a lot into the market at a lucky time put me past my goal in eight years. So, rather than ER now or in two years, I am shifting gears. I'm going to work and save as usual for the next three years. My DH is retiring early at 62 next year. I will phase into half time in three years. That said, it sure is nice to know we both could quit tomorrow.

SORR was just a concept to me before I started planning. Once I really thought about quitting and what life would look like, the fear of being stranded and digging into my savings was palpable. So, I am going to do something very similar to what you are doing. I'm keeping a year of expenses ($45k is a little more than comfortable for the two of us) in a HYSA, and then I am just going to chase short-term CDs until I understand more about what this new Fed chair means for rates. Then, I will make a longer-term investment. I think having to $100K MYGAs will help me to take the risk out of those years between 64-70 when I may be working half-time or not working.

I'm glad that you brought up the Roth component. I'm still trying to decide whether or not I should open an IRA and Roth and start conversions. If my spouse is retired, and I am on half-time, then our income will be low (and lower if I continue to contribute to my tax-deferred retirement account). The optimal time to transfer is approaching, so this year will be the year to open it and put in the first max contribution to get ready for the five-year access process. However, we don't have kids/grandkids and don't need to prepare a legacy. So, I am not sure if the hassle of opening a Roth is worth it. What do you think?

 

[Al18]

Opening a Roth IRA and funding it can be done online and takes less than 10 minutes. Put $100 into the Roth, so you start the 5 year clock. While you are working and make less than the maximum allowed, you can contribute $7500 (or more, depending on age) and invest in a stock index ETF. Make no withdrawals for 5 years and you can withdraw tax and penalty free forever. It’s all pretty simple.

 

[jazz4cash]

Opening a Roth IRA and funding it can be done online and takes less than 10 minutes. Put $100 into the Roth, so you start the 5 year clock. While you are working and make less than the maximum allowed, you can contribute $7500 (or more, depending on age) and invest in a stock index ETF. Make no withdrawals for 5 years and you can withdraw tax and penalty free forever. It’s all pretty simple.

Pretty much what i did as soon as I was aware of the 5 yr clock before I was actually committed to using a Roth account. DW was ambivalent so I opened one up for her as well since I was managing her IRA. I made contributions to both which was painful and only did small conversions. My goal was tax diversification. Having a small chunk that we can deploy with no tax consequences helps me SWAN.

 

[Al18]

Why would you withdraw from a Roth IRA? How about buying a new car or SUV in 5 years that costs $50K. If all you money is in a traditional IRA and you’re in the 22% tax bracket, you’ll need to withdraw $64K, withhold $14K in federal tax to buy your $50K vehicle

 

[jazz4cash]

Why would you withdraw from a Roth IRA? How about buying a new car or SUV in 5 years that costs $50K. If all you money is in a traditional IRA and you’re in the 22% tax bracket, you’ll need to withdraw $64K, withhold $14K in federal tax to buy your $50K vehicle

That's one scenario but the one I consider the most is this: I plan and manage IRA distributions throughout the year to hit income targets for SWR, tax brackets, etc. If the furnace takes a dump in the middle of December I'd like to have options other than taking an extra distribution. I may only need to defer that expense for one month. I have credit card as well but the Roth is like part of my emergency fund. Paying cash for a new car sounds like fun but I'd probably be anxious watching those funds leave my account for a discretionary purchase.

 

[Tommyboy]

SO has her first rung of a 3,4, and 5 year MYGA ladder coming due in Jan 2027. We're still working
on a plan to extract the non-qualified 225K of the first rung with the lowest tax hit. Thinking of
a 15 year income annuity to spread out the tax hit instead of the lump sum.

yep, thats what I'll be doing.. Rolling into 5 or 10 year period certain SPIA to chop up the interest paid to me. Otherwise, it would be a big tax hit on a single year..
This way, the taxable portion is minimal each year.

 

[pb4uski]

I have to wonder if it would be better to manage income and taxes by rolling into another MYGA and dutifully using the 10% annual penalty free withdrawal option to generate income rather than set up a 5 or 10 year SPIA and have the income be fixed and inflexible.

 

[ShokWaveRider]

I have to wonder if it would be better to manage income and taxes by rolling into another MYGA and dutifully using the 10% annual penalty free withdrawal option to generate income rather than set up a 5 or 10 year SPIA and have the income be fixed and inflexible.

I have done both. With my IRA I took 50% of it and set up a 10y Period Certain SPIA that will take care of my RMDs that start next year. The other half is in a 5y MYGA that I do not intend on touching until it matures. The rest of our post tax nest egg are in MYGAs maturing at various times. Annually I take out enough from the post tax MYGAs accrued interest to cover the current years taxes along with enough to maximize our taxable income but not hit the IRMAA ceiling. Any other income that we want, I take from our post tax general fund bucket that is invested in high yielding MM. Some call this an emergency bucket, but it is way more than that. We are also stockpiling this bucket to pay for a new home without having to sell our current home, so we can give ourselves a "Bridging Loan" without having to sell any of our other investments. I do not find utilizing the up to 10% withdrawals too tedious. I do it all in November of the current year.

Note: I say "I" but I really mean "We" as the funds are all joint, but I manage them all, and DW just goes along with whatever I decide is best for us

 

[VanWinkle]

I have to wonder if it would be better to manage income and taxes by rolling into another MYGA and dutifully using the 10% annual penalty free withdrawal option to generate income rather than set up a 5 or 10 year SPIA and have the income be fixed and inflexible.

I have also considered this plan as well. The withdrawals can be time consuming and one has to always stay on top of the dates(30 day window) in some cases. It may be the easier path to have the 15 year Income annuity with checks arriving each month without any effort. Your thoughts are appreciated though as I am sure it would end up with a greater yield over time.

 

[RetiredHappy]

I have 2 deferred fixed income fixed term annuities. Like clockwork the money is deposited into my bank account every month, for 25 years. It forms one of our legs of income in retirement. Bought them when I retired at 53, one started at 60 and ends at 70, the second one starts at 70 and ends at 85. I may buy a QLAC that will start at 85, depending on my health later on.

 

[Tommyboy]

I have to wonder if it would be better to manage income and taxes by rolling into another MYGA and dutifully using the 10% annual penalty free withdrawal option to generate income rather than set up a 5 or 10 year SPIA and have the income be fixed and inflexible.

I considered that and my thought there is each withdrawl of 10% of a rolled over myga would be 100% taxable as it is all interest being paid first.

My period certain SPIA would chop up the interest evenly and anything I don't spend, Ill reinvest in voo or a money market split..

I have a second myga coming due 6 months after the first. Not exactly sure which direction Ill go on that one yet.

 

[NeverBored]

After nearly fifty years, my husband is no longer able to make investment decisions and I'm having to come up to speed to manage our retirement funds. MYGAs and tax-free or -advantaged bonds seem to be the options to diversify cash and lower tax exposure. Many of you have good MYGA experiences -- would you put cash from matured CDs into MYGAs to postpone the income tax hit?

 

[Al18]

If the CD’s are in a taxable account, then you’ve been paying taxes on the interest earned each year. There is no tax impact when the CD matures.

You can defer taxes if you put the proceeds in a MYGA, but you will pay taxes on the interest when money is withdrawn from a MYGA.

 

[pb4uski]

After nearly fifty years, my husband is no longer able to make investment decisions and I'm having to come up to speed to manage our retirement funds. MYGAs and tax-free or -advantaged bonds seem to be the options to diversify cash and lower tax exposure. Many of you have good MYGA experiences -- would you put cash from matured CDs into MYGAs to postpone the income tax hit?

I'm afraid that it gets complicated There are two types of annuities... qualified and non-qualified. Qualified annuities are akin to a regular 401k or deductible IRA where the money in the annuity has not been taxed. For qualified annuities, all withdrawals are taxable income. Non-qualified annuities are akin to money in a taxable account. For non-qualified deposit annuities, withdrawals are taxable interest first and non-taxable principal second (after all taxable nterest is withdrawn).

But we are here to help, so ask away! Wht tax bracket are you in now? Do you currently have taxable accounts (like brokerage accounts), tax-deferred accounts (like 401k/traditional IRAs) or tax-free accounts 9like Roth 401ks or Roth IRAs)?

What kind of account are the maturing CDs in?

 

[NeverBored]

...

But we are here to help, so ask away! Wht tax bracket are you in now? Do you currently have taxable accounts (like brokerage accounts), tax-deferred accounts (like 401k/traditional IRAs) or tax-free accounts 9like Roth 401ks or Roth IRAs)?

What kind of account are the maturing CDs in?

Thank you -- I wasn't very clear.... we have
--brokerage accounts with MFs and stocks
--CDs at brokerage and credit union
--emergency cash in MM fund and savings accounts
--tIRAs that are all stock or funds; taking RMDs now
--we missed the Roth boat
--Social Security, pensions and some rental income that cover living expenses. RMDs are reinvested, given to kids or charity, sometimes used for large-ticket items
--will likely move to 24% bracket this year; first level IRMAA now

My husband set up a great foundation; I'm trying to take care of things now. We had too much cash sitting in savings accounts, which I've moved to CDs and a money market fund. I want to keep a chunk of available cash for medical and long-term care needs (he's ten years past major stroke and becoming quite frail), but would like to be more tax-efficient with the cash/equivalent. So it's the post-tax (non-qualified) money that I'm looking at. MYGAs and tax-free bonds seem like they could work.

 

[Tommyboy]

First. Those CD's in a Non-Qualified account. You have been paying taxes on the interest each year the banks sent you statements that you should have been adding those to your taxable income and paying taxes on. So, there is nothing to be concerned about where to roll these into from a tax implication standpoint. You can put that money anywhere.

Two. If you place that money into a MYGA - My advice (what I do) is stick with A or better.
Stay under your state limit of insurance with each company you do a MYGA with - In my state it is 250k.

Three: Points on MYGA. Most offer up to 10% wd per year without penalty.
Any money that comes out of a MYGA is always Interest (taxable) first, then return of principal (not taxable). I personally do not use these for the 10% wd but knowing it is there is a nice safety valve should it be needed.

At the end of the MYGA period the window is 30 days to do something. I suggest not missing that window. None of mine have matured yet but I have them set to google calendars to go off when the time comes.

At the end of a MYGA if you take the money out and not roll it elsewhere 1035 you will have a large taxable income event as all the accumulated interest will be reported.

My plan, is when the MYGA expires to roll that into a Period Certain SPIA. In doing that it chops up all the accumulated taxable interest into smaller chunks each of the period certain years and boosts my income for 5 or 10 years so I don't have to sell stocks if I don't want to.

If you want an investment that gains high 4's to low 5's % and is 99.9% safe choose an A rated or better company's MYGA and staying under your states limit for each companies contract is a decent choice. The end is the tricky part.

I know nothing about tax free bonds.

Also note, lots of benefits and choices to consider on rental houses for long term planning.
1 step up basis for beneficiaries (get a trust, keep them out of probate)
2 If needed, you can always get instant cash with a DSCR loan. The money you get is NON taxable as it is a loan and the interest you pay per year is Tax Deductible.
No credit needed as it uses your lease / rental income as the source of funds for the loan. Of course that means you drain your Taxable monthly income from that source because it goes to pay the DSCR loan..


Good Luck.
Tommy

 

[pb4uski]

...but would like to be more tax-efficient with the cash/equivalent. So it's the post-tax (non-qualified) money that I'm looking at. MYGAs and tax-free bonds seem like they could work.

MYGAs aren't necessarily more tax in your situation even though they defer taxes on income all you are doing is kicking the tax can down the road. Either you or your heirs will eventually pay taxes on that income.

If you have a broker or advisor, you might want to into tax-free municipal bonds.

 

[CautaServans]

MYGAs aren't necessarily more tax in your situation even though they defer taxes on income all you are doing is kicking the tax can down the road. Either you or your heirs will eventually pay taxes on that income.

If you have a broker or advisor, you might want to into tax-free municipal bonds.

In my case (and, again, I have to thank people in this thread and others in this community for recommending MYGAs), my ER plan is to stop taking extra work in the summer, get my husband retired next year, and go on half time in three years to retire fully at 67 (eight years out from now). A MYGA or two ramps up safe saving for paying out when our household income falls well below 50% of our earnings now. I love how the tax deferral during higher income years benefits us while taxation will start before I take social security. That means I don’t have to worry about starting social security until 70 and can wait a long time to tap my 403b and 457b accounts.

 

[pb4uski]

Will you be able to withdraw what you need in those years without surrender penalty using 10% surrender penalty free withdrawals? or will you need to ladder MYGA maturities to align with your expected cash flow needs?

To some extent you're just exchanging kicking one tax can down the road (430b and 457 withdrawals) for another (MYGA withdrawals.