What is a fixed annuity (a.k.a. MYGA)?

A fixed annuity is a straightforward insurance contract offering a guaranteed fixed interest rate on your investment. By putting your money into a fixed annuity, you lock in a stable return with insurance companies committing to pay back your principal plus interest over the contract term. This retirement savings product stands out for its simplicity and reliability, ensuring predictable financial growth without the complexities of other annuity types. Fixed annuities are also known as MYGAs or multi-year guaranteed annuities. Interest is typically compound interest calculated based on the latest account value, but there are a few MYGAs with “simple” interest calculated based on initial principal value. Also, the tax-deferred growth benefits of MYGAs are powerful.

What is a fixed index annuity (a.k.a. FIA)?

A fixed index annuity combines the safety of guaranteed returns with the potential for higher gains linked to a stock market index, without direct market exposure. The gains linked to a stock market index are called “interest credits,” which actually compound on the annuity owner’s beginning of the crediting period account value. This product offers a balanced approach, securing and guaranteeing your principal while allowing for growth opportunities based on equity market performance, providing a strategic blend of security and potential upside. Interest credits also compound on the FIA owner’s account value in a tax-deferred manner. When an FIA’s reference equity index declines, the interest credit is zero, causing no decline in the annuity owner’s account value, hence the principal is always guaranteed.

What does it mean that an annuity grows tax-deferred?

MYGA and FIA annuities offer a tax-deferred growth advantage, allowing your interest to accumulate without immediate tax implications until funds are withdrawn. Unlike savings accounts or CDs, which require annual tax reporting of gains, fixed annuities delay these tax obligations. This feature benefits all investors by enabling interest to compound over time. It’s particularly advantageous for those in a higher tax bracket upon investment who anticipate being in a lower tax bracket upon withdrawal, such as during retirement.

What types of annuities does PlanEasy offer?

PlanEasy offers fixed annuities known as MYGAs and fixed index annuities known as FIAs.

Why should you do business with PlanEasy?

White Glove Service: Annuity customers interact directly with PlanEasy principals, who offer industry-leading white glove service by answering any and all questions and executing the entire annuity application and funding process on the customers behalf - we go to bat for you. Ask for references. Our customers have come away extremely impressed.

Unmatched Expertise: PlanEasy principals are annuity industry veterans that founded and ran a top annuity carrier called American Life, where PlanEasy team members designed and manufactured some of the best MYGA and FIA annuity products in the market today. Thus, they understand these annuity products better than any agent in the country.

Customer First: Also, PlanEasy’s customer ethos always puts the customer first. Learn more.

Is PlanEasy an insurance company?

PlanEasy is a national insurance agency contracted with dozens of top life & annuity insurance carriers to sell their MYGA and FIA products. Almost every insurance carrier sells a significant portion of their MYGA and FIA annuities through the agency channel, which consists of agents like PlanEasy. PlanEasy and its individual agents are licensed in almost every state in the U.S. This is important because MYGA and FIA annuities are regulated as insurance products by the state, in which the annuity buyer lives.

What are the benefits of MYGAs?

MYGAs stand out as a preferred choice for those looking to mitigate risk and ensure a stable financial future. MYGAs grow in a tax-deferred manner, which means more of your money grows and compounds without paying taxes along the way. MYGAs are technically insurance products that offer a guaranteed interest rate, shielding investors from the unpredictability of the stock market, as well as guaranteed principal protection. This makes MYGAs a more secure savings option, appealing to individuals seeking peace of mind regarding their retirement savings. MYGAs are typically categorized into two main types: accumulation-focused and annuitization-focused. Accumulation-focused fixed annuities, such as MYGAs sold by PlanEasy, are designed to offer competitive interest rates. This feature enables investors to grow their savings more efficiently, making it an excellent strategy for building wealth over time. By choosing a fixed annuity, investors can enjoy the dual benefits of financial security and the potential for attractive account growth, all while avoiding the risks associated with market fluctuations.

MYGA buyer checklist

Most customers evaluate the following features of a MYGA, often in this order:

  • Availability in Customer’s Home State
  • Guaranteed Interest Rate %
  • Issuer/Carrier Rating
  • Product Term
  • Penalty-Free Withdrawals
  • Ownership Type
  • Tax Status
  • Funding Source
  • Max Owner Age
  • Death Benefit
  • Beneficiaries
  • Rate Lock / Funding Timing Guidelines
  • Free Look Period
  • Surrender Charge Schedule
  • MVA (Market Value Adjustment)
  • End of Term Options
  • Any Fees
  • Any Optional Riders & Their Costs
  • Agent Commission
  • Principal Guaranteed
  • Tax-Deferred Growth

What are the benefits of FIAs?

FIAs are a preferred choice for those looking to mitigate risk via guaranteed principal protection while having exposure to upside via participation in the increase (but not decline) of a stock market index, such as the S&P 500. Fixed index annuities are a favored solution in retirement planning, offering a strategic balance between safeguarding investments and fostering growth potential. Key advantages include ensuring your principal is safeguarded against market volatility, securing your savings from losses. Relative to MYGAs, FIAs offer the opportunity for higher returns linked to stock market indices like the S&P 500, without the risk of direct market exposure. Owners of FIAs avoid losses tied to declines in the reference equity index, ensuring their principal is always guaranteed. FIA funds grow tax-deferred without immediate tax implications, deferring taxes until withdrawals, which may lower your overall tax burden and enhance compounding. FIAs also provide different riders, such as lifetime income riders that can provide options to convert your balance into a consistent, guaranteed income stream, offering stability in retirement. FIAs offer various interest crediting methods, withdrawal options, and additional riders for a personalized financial strategy; PlanEasy recommends starting with the basic S&P 500 index annual point to point cap rate strategy, as that’s the base strategy for most FIAs; then you can compare performance illustrations of other strategies versus that one.

What is a Qualified annuity, and how is it taxed?

A qualified annuity refers to an annuity that is funded with pre-tax dollars as part of a retirement plan, such as an IRA or 401(k). Just like these retirement accounts mentioned, qualified annuities are subject to Required Minimum Distribution (RMD) withdrawal rules, where mandatory distributions must be taken by a certain age. The taxation of qualified annuities is distinct in that the money invested in these annuities has not yet been subjected to income taxes. When you start receiving distributions from a qualified annuity, all distributions (of funds including both principal and interest earned) are fully taxable as ordinary income at your income tax rate. This is because the contributions were made with pre-tax dollars, and the principle of tax deferral means that taxes are paid upon withdrawal and distribution of funds rather than at the time of contribution.

What is a Non-Qualified annuity, and how is it taxed?

A non-qualified annuity is an annuity that is purchased with after-tax dollars. Unlike qualified annuities, which are bought within retirement accounts like IRAs or 401(k)s using pre-tax dollars, non-qualified annuities do not have the same contribution limits or Required Minimum Distribution (RMD) withdrawal rules dictated by retirement account regulations. The primary distinction lies in the source of funding: Non-qualified annuities are funded with money that has already been subjected to income taxes. The taxation of non-qualified annuities focuses on the earnings or interest component of the withdrawal. Since the principal amount invested in a non-qualified annuity was already taxed before it was contributed, only the earnings part of the annuity is taxable at your ordinary income tax rate when withdrawn; distribution of the principal portion is not taxed. This tax treatment is known as "LIFO" (Last In, First Out), meaning the most recently earned interest earnings are withdrawn and taxed first; after all the earned interest has been withdrawn, then the principal component of the withdrawal occurs and is not taxed. Note, an annuity bought within a Roth IRA is typically considered non-qualified, as such funds have already been taxed.

How does the 59½ years of age early withdrawal 10% penalty from the IRS work?

Withdrawing from an annuity before age 59½ often triggers a 10% early withdrawal penalty tax. This penalty affects the entire distribution for pre-tax qualified annuities. For non-qualified annuities, the penalty typically applies only to earnings and interest component of your withdrawal using the “LIFO” (Last In, First Out) approach, where all interest earned is considered withdrawn first before the principal component is considered withdrawn. Note that some exceptions may exist; please consult with a tax advisor to verify.