Best Annuity Rates for Nov 20, 2024

FAQs:

Why do Direct-To-Consumer (DTC) Annuities Have Higher Rates?

Direct-To-Consumer (DTC) annuities, like those offered by companies such as Gainbridge and Canvas(issued by Puritan Life), typically feature higher rates on their fixed annuities a.k.a MYGAs (Multi-Year Guaranteed Annuities). This is because these issuers bypass traditional sales channels, meaning they do not sell through agents and therefore save on agent commissions. Instead of paying commissions, these companies can allocate a portion of the savings directly into the annuity's interest rates, resulting in higher returns for the consumer. This model allows DTC annuities to offer more competitive rates compared to those sold through agents.

Why Do Customers Buy Annuities from PlanEasy if They Already Own DTC Fixed Annuities from Gainbridge or Canvas?

Customers buy annuities from PlanEasy to diversify their portfolios and reduce concentration risk in just one or two products. PlanEasy offers a wide range of competitive products and personalized financial planning. Additionally, PlanEasy's team, with experience in founding and managing an annuity insurer and large institutional portfolios, provides unmatched white-glove concierge-level service. This expertise in annuity product design and customer service helps clients optimize their investment strategies by spreading risk across multiple providers.

Who is PlanEasy?

PlanEasy is a specialized online annuity agency, offering a wide range of competitive annuity products and personalized financial planning services. Our annuity marketplace delivers the most transparent information on the best annuity rates available online. Founded by industry veterans with experience leading and designing products for an annuity insurer, PlanEasy offers concierge-level services tailored to high-net-worth clients. Our expertise in the annuity market, paired with an unwavering commitment to customer service, makes us the leading online agency for those seeking premium financial solutions. See our About Us page to learn more.

How Do I Compare Fixed Annuities?

To compare fixed annuities, start by focusing on three key factors: the guaranteed rate, insurer rating, and investment term. The guaranteed rate indicates how much your money will grow annually, typically matching the surrender charge period. Insurer ratings, such as A.M. Best's, assess the financial strength of the company, ranging from A++ (superior) to B (good). The investment term, usually 1 to 10 years, dictates how long you'll receive the guaranteed rate and how accessible your funds are during that period. After evaluating these, you can compare other features.

What Features Should I Evaluate When Choosing a Fixed Annuity a.k.a MYGA?

When selecting a MYGA (Multi-Year Guaranteed Annuity), consider these key features:

• Availability in Customer’s Home State (Annuity insurer/issuer must be licensed in owner’s home state to sell the annuity to that customer)
• Guaranteed Interest Rate %> (Typically compounded; rate can vary by customer’s home state or by purchase amount)
• Issuer/Carrier Rating (AM Best rating denotes the financial strength of the insurance company issuing the annuity; typically lower-rated insurers offer higher rates)
• Product Term (1-10, 20 years earning the guaranteed rate; this term also aligns with the surrender charge period)
• Penalty-Free Withdrawals (Withdraw interest only, some % of account value or none; typically for the same product, having free withdrawals reduces the interest rate)

Other Features:

• Ownership Type (Natural Person, Company, Trust, Pension; Single vs. Joint)
• Tax Status (Qualified Before-Tax or Non-Qualified After-Tax)
• Funding Source (Bank Account, Replacing an Existing Annuity (1035 Exchange for Non-Qualified), Brokerage Account, 401(k), IRA, Roth IRA, Pension, Money Purchase Plan, etc.)
• Max Owner Age (Available to customers of this age or younger; also, remember the 59½ early-withdrawal 10% IRS penalty which applies to all annuities)
• Death Benefit (Typically account value to beneficiary, but be aware some death benefits are surrender value)
• Beneficiaries (Typically a spouse or non-spouse natural person(s) or corporation; primary and contingent)
• Rate Lock / Funding Timing Guidelines (Typically the rate on the day of app submission is honored as long as funds received within a certain period thereafter)
• Free Look Period (Certain number of days after issuance during which you can still cancel your annuity policy; can vary by state)
• Surrender Charge Schedule
• MVA (Market Value Adjustment on withdrawals above the penalty-free withdrawal amounts, if any, that also incur surrender charges; typical in most MYGAs)
• End of Term Options (Typically within X-day window before maturity, you decide to: withdraw proceeds, annuitize into income, transfer to another annuity or do nothing / auto renew same product at new rate)
• Any Fees (Typically none)
• Any Optional Riders & Their Costs (Additional features you can add with a cost/reduction in rate)
• Agent Commission (Paid by carrier to agent / PlanEasy)
• Principal Guaranteed (Always)
• Tax-Deferred Growth (Yes, unless annuity is owned by a company)

Fixed Annuities vs. CDs?

Fixed annuities and Certificates of Deposit (CDs) differ in key areas. Fixed annuities, issued by insurance companies, typically offer higher interest rates with longer terms (1-10 years) compared to CDs (3 months-5 years), issued by banks and credit unions. Fixed annuities provide tax-deferred growth, while CD interest is taxed annually. They usually require higher minimum investments ($5k, with average purchases around $100k), while CDs have lower minimums ($500). Fixed annuities offer insurer-backed guarantees and bypass probate, directly transferring assets to beneficiaries, whereas CDs are FDIC-backed and subject to probate. Learn more here: Fixed Rate Annuity vs. CD

How Are Annuity Rates Determined?

Annuity rates, especially for fixed annuities like MYGAs, are determined by the issuing insurance company through a process called Asset-Liability Management (ALM). They are influenced by the general interest rate environment, including factors like the Federal Reserve’s rate decisions. Insurers invest premiums in assets such as bonds, and the returns on these investments help set the rates. Other factors include market competition, regulatory requirements, and the insurer’s financial health.

Where Can I Buy Annuities Online?

You can buy annuities online from various platforms, including:

• Blueprint Income
• Canvas
• Gainbridge
• Annuity.org
• AnnuityAdvantage
• ImmediateAnnuities
• MyAnnuityStore
• Annuity FYI
• Annuity Resources
• Stan the Annuity Man

How Do Insurance Company Ratings Affect Annuity Rates?

Insurance company ratings impact annuity rates by reflecting the insurer's financial strength and stability. Higher-rated companies (e.g., “A” rated by AM Best) are more likely to offer competitive and consistent rates, while lower-rated companies (e.g., “B” rated by AM Best) might offer higher rates to attract buyers but with increased risk. Always consider the rating as an indicator of the company's ability to meet its future obligations.

Should I Lock in an Annuity Rate Now?

Locking in an annuity rate now might be a good decision if you anticipate interest rates will decline or remain stable. Fixed annuity rates are influenced by the current interest rate environment, and securing a rate now can provide guaranteed returns over the term of the annuity. However, if you expect rates to rise, you might want to wait for potentially higher rates. Consider your financial goals, market trends, and consult with a financial professional before making a decision.

What Are AM Best Ratings and How Do They Affect Annuities?

AM Best ratings evaluate the financial strength and stability of insurance companies. These ratings, ranging from "A++" to "D," indicate the insurer's ability to meet its obligations, including paying annuity holders. Higher AM Best ratings suggest a stronger, more reliable company, which can affect the rates offered on annuities. Companies with high ratings tend to offer competitive, stable annuity rates, while lower-rated companies might offer higher rates to attract customers but may carry greater financial risk.

Is B++ a Good AM Best Rating for an Annuity Insurer?

A B++ AM Best rating indicates that an annuity insurer has "Good" financial strength but is lower than ratings like A or A+. While it suggests the company is stable and can meet its obligations, it also means there's a slightly higher risk compared to higher-rated insurers. When considering a B++ rated insurer, it’s essential to weigh the potential benefits against the risks, especially if higher-rated alternatives are available.

What Does MVA Mean in an Annuity?

A Market Value Adjustment (MVA) is an adjustment applied by insurance companies to an annuity when the policyholder makes an early withdrawal or surrenders the contract. The MVA is based on the comparison between the annuity’s guaranteed interest rate and current market rates, and it can increase or decrease your payout.

MVAs can be triggered by:

• Withdrawals: Withdrawing more than the penalty-free amount allowed.
• Surrendering: Surrendering the annuity within a certain number of years after purchase.

This adjustment helps manage interest rate risk and can significantly affect your annuity's value.

What is a Surrender Charge?

A surrender charge, also known as a withdrawal charge or surrender fee, is a penalty imposed when you withdraw funds beyond the penalty-free withdrawal amount, if any, from an annuity or cancel the contract before the end of the surrender period. For fixed annuities, this period usually matches the interest rate guarantee period or term. The charge is a percentage of the withdrawal amount, typically higher in the early years and decreases over time. Surrender charges are designed to help insurers recover costs but can reduce your investment’s value.

What Are Annuity Free Withdrawals?

Free withdrawal provisions in an annuity allow you to access a portion of your funds without penalties, such as surrender charges or Market Value Adjustments (MVAs). Typically, you can withdraw up to 10% of your account value per year starting in year 1 or 2. Some annuities permit 5% or only the earned interest from the last 12 months to be withdrawn. Required Minimum Distributions (RMDs) are generally exempt from these charges. Always review your specific annuity contract for details.

What Is the 10% Early Withdrawal Penalty Before Age 59½?

If you withdraw funds from an annuity before age 59½, the IRS generally imposes a 10% early withdrawal penalty. For pre-tax qualified annuities, this penalty applies to the entire distribution. In non-qualified annuities, the penalty typically affects only the earnings and interest portion, based on the "Last In, First Out" (LIFO) method. Exceptions may apply, so consulting a tax advisor is recommended.

How Are Annuity Withdrawals Taxed?

Annuity withdrawals are taxed based on whether the annuity is qualified or non-qualified. For non-qualified annuities, withdrawals are taxed on a Last In, First Out (LIFO) basis, meaning that earnings and interest are withdrawn first and taxed as ordinary income. Once the earnings are exhausted, withdrawals of the principal are not taxed. For qualified annuities, withdrawals are fully taxable as ordinary income since they were funded with pre-tax dollars. Understanding these rules is crucial for effective tax planning.

What is a Fixed Annuity or MYGA?

A fixed annuity, also known as a Multi-Year Guaranteed Annuity (MYGA), is an insurance contract that offers a guaranteed fixed interest rate on your investment over a specified term. It provides predictable growth with compound or simple interest, making it popular for retirement savings. MYGAs also offer tax-deferred growth, allowing your investment to grow without immediate tax liabilities, making them a reliable choice for long-term financial planning.

What is a Qualified Annuity?

A qualified annuity is funded with pre-tax dollars, usually through a retirement account like an IRA or 401(k). Contributions grow tax-deferred, but withdrawals are taxed as ordinary income. Qualified annuities must follow the same rules as other tax-advantaged retirement accounts, including required minimum distributions (RMDs) starting at age 73 under SECURE Act 2.0. These annuities are ideal for retirement savings, offering tax benefits while adhering to IRS regulations.

What is a Non-Qualified Annuity?

A non-qualified annuity is funded with after-tax dollars, meaning contributions are made from income that has already been taxed. While the principal amount is not taxed upon withdrawal, the earnings on the investment are subject to ordinary income tax. The IRS taxes non-qualified annuity withdrawals on a "Last In, First Out" (LIFO) basis, meaning that earnings are withdrawn and taxed before the principal. Non-qualified annuities do not have contribution limits or required minimum distributions, making them flexible options for additional retirement savings.

What is a Death Benefit for Fixed Annuities?

A death benefit for fixed annuities ensures that the remaining value of the annuity is paid to a designated beneficiary upon the annuity holder's death. Typically, this payout is the current account value or total premiums paid plus interest, minus withdrawals. However, some fixed annuity MYGAs may offer a "surrender value" death benefit, where surrender charges reduce the payout. A true death benefit may require purchasing a rider, potentially lowering the overall rate.

How Are Death Benefits Paid to Beneficiaries?

Death benefits from an annuity can be paid out in several ways, each with different tax implications:

• Lump Sum Payment: The entire benefit is paid at once, potentially leading to a higher tax bill.
• Five-Year Rule: The benefit must be fully distributed within five years.
• Non-Qualified Stretch: Allows beneficiaries to spread payments over their lifetime, possibly reducing annual taxes.
• Periodic Payments: Regular payments over a set period.

Each method affects taxes differently, so understanding these options is crucial for financial planning.

My Annuity Has Matured and Is Out of Surrender - What Are My Options?

Once your annuity is out of the surrender period, you have several options:

• Withdraw Funds: Access your funds without surrender charges.
• Transfer to Another Annuity: Move funds into a new annuity without tax consequences; for non-qualified annuities, this is known as a 1035 exchange.
• Auto-Renew: Keep your same annuity contract but at a new rate.
• Annuitize: Convert the annuity into regular income payments.

Each option has different benefits and tax implications, so it’s essential to align them with your financial goals.

What is a 1035 Exchange for Annuities?

A 1035 exchange is a tax-free transfer between non-qualified annuity contracts, which are funded with after-tax dollars. This exchange allows you to move funds from one annuity to another without incurring immediate tax liabilities, provided the transfer is direct and the contracts involved are of the same type (e.g., annuity to annuity). It's important to note that 1035 exchanges do not apply to qualified contracts like IRAs or 401(k)s, which have different rules for transfers and rollovers.

Sources

1. Business Wire: PlanEasy Launches Innovative Retirement Platform and Annuity Marketplace for Consumers
2. PlanEasy: About Us
3. PlanEasy: Fixed Annuities vs Bank CDs
4. PR Newswire: Canvas Introduces Direct-to-Consumer Annuity Options Online
5. SmartAsset: MYGA: Multi-Year Guaranteed Annuities
6. Investopedia: Fixed Annuity
7. New York Life: CD vs Fixed Deferred Annuity
8. Morgan Stanley: Understanding Fixed Annuities
9. Gainbridge: About Us