Help Please - Is Considering an MYGA to Assist in Managing 2026 Income Total (ACA Cliff) Ideal?

[VanWinkle]

You do a 1035 exchange into an income annuity of the length you choose.
It needs to be at least 10 years certain for the IRS to use an exclusion rate
as follows:

Investment in the contract(cost basis) divided by Total expected return=
Exclusion Ratio.

The exclusion ration determines how much of the monthly payment
is not taxed as a return of principal.

 

[DreamingOfFI]

I'm a fan of MYGA's and have a fairly large number of them. As was mentioned above it is a good idea to spread the risk over different carriers and also to remain below the state guaranty limit for your state on any one carrier ($250k in my state).

Another means of eliminating taxes on dividends is to purchase muni bond funds for your state. For example, VMATX would provide dividends that are tax exempt from federal and state. Of course, It carries more interest rate risk than a money market fund as we saw in 2022.

 

[DreamingOfFI]

I'm a fan of MYGA's and have a fairly large number of them. As was mentioned above it is a good idea to spread the risk over different carriers and also to remain below the state guaranty limit for your state on any one carrier ($250k in my state).

Another means of eliminating taxes on dividends is to purchase muni bond funds for your state. For example, VMATX would provide dividends that are tax exempt from federal and state. Of course, It carries more interest rate risk than a money market fund as we saw in 2022.

However if the goal is to reduce MAGA munis may not help because I believe they do get included in your MAGA.

 

[DreamingOfFI]

However if the goal is to reduce MAGA munis may not help because I believe they do get included in your MAGA.

Too early in the morning, I meant MAGI not MAGA.

 

[ut2sua]

A quick AI search for my own benefit: California appears to only cover 80% of MYGA's loss (up to 250k). I don't know about other states.

 

[pb4uski]

If you roll a MYGA into a SPIA at maturity how is the interest that was earned in the MYGA taxed?

Over the life of the SPIA payments as if you had bought the SPIA for cash. Your basis for the SPIA is your deposits into the MYGA, IOW the basis carries over.

 

[calmloki]

We are childless with primary residence in California (a community property state). Our owner carried contracts, rental income, other interest and dividends kick us far past what we need to cover our expenses and well past the 3.8% NIIT threshold, even after doing a charitable contribution of appreciated stocks equal to about a quarter of our income. Wah Wah. poor us. Doesn't mean I don't want to be efficient.

I've been looking at California municipal bonds or MYGAs to replace some of the short term T-Bills we have and am not real impressed with the simplicity of roll-over or return. How are they superior to another commenter's suggestion to buy a low dividend paying fund like VTI or maybe Berkshire Hathaway? No possible 10% redemption limit on a VTI sale, easy clear step-up basis at death, reduction in taxable income? Possible big drop in value in a stock crash, but that would allow some tax loss harvesting and repurchase of a similar fund. What am I not understanding?

 

[RetiredHappy]

We are childless with primary residence in California (a community property state). Our owner carried contracts, rental income, other interest and dividends kick us far past what we need to cover our expenses and well past the 3.8% NIIT threshold, even after doing a charitable contribution of appreciated stocks equal to about a quarter of our income. Wah Wah. poor us. Doesn't mean I don't want to be efficient.

I've been looking at California municipal bonds or MYGAs to replace some of the short term T-Bills we have and am not real impressed with the simplicity of roll-over or return. How are they superior to another commenter's suggestion to buy a low dividend paying fund like VTI or maybe Berkshire Hathaway? No possible 10% redemption limit on a VTI sale, easy clear step-up basis at death, reduction in taxable income? Possible big drop in value in a stock crash, but that would allow some tax loss harvesting and repurchase of a similar fund. What am I not understanding?

Nothing. People buy MYGA as a form of diversification instead of the goal of being tax efficient.

 

[pb4uski]

What are you seeing for tax equivalent rates for short and intermediate California municipal bonds?

Muni yield /(1 - federal marginal tax rate - CA marginal tax rate)

 

[GenXguy]

Nothing. People buy MYGA as a form of diversification instead of the goal of being tax efficient.

A big reason I starting getting MYGA's was to lower my MAGI for several years while on the ACA rather than investing in more CD's or TIPS. It's worked. Also purchased some BRK.B though.