In this guide, we’ll explain what a fixed annuity is, how they work, fixed annuity taxation, current annuity rates, the pros and cons, and how to purchase a fixed annuity.
|2 yrs||SILAC||B+||Secure Savings Elite 2||2.15%|
|3 yrs||Oceanview Life||A-||Harbourview 3||2.35%|
|4 yrs||Oceanview Life||A-||Oceanview Harbourview 4 Year Annuity||2.60%|
|5 yrs||Atlantic Coast Life||B++||Safe Haven||3.00%|
|6 yrs||Atlantic Coast Life||B++||Safe Haven||3.07%|
|7 yrs||Security Sentinel Life||B++||Personal Choice||3.10%|
|8 yrs||Oxford Life Insurance||A-||Multi-Select MYGA||2.80%|
|9 yrs||Liberty Bankers Life||B++||Bankers Elite 9||3.00%|
|10 yrs||Atlantic Coast Life||B++||Safe Haven||3.20%|
Complete the form below to request an annuity quote or you can use one of our annuity calculators. For immediate assistance, you contact us at 855-583-1104.
A fixed annuity or multi-year guaranteed annuity (MYGA) is a type of tax-deferred retirement savings account that pays a guaranteed interest rate for a set period of time.
Fixed annuities are often compared to Certificates of Deposit (CDs) and are sometimes referred to as a “CD Type Annuity” because of the many similarities. Essentially, a fixed annuity is a CD sold by an insurance company instead of a bank.
One key difference is that the earnings from a fixed annuity are not taxed until you withdraw your money; whereas CD interest is taxed in the year it is earned – regardless if you spend it.
NOTE: You may also hear a fixed annuity referred to as one of these names:
With a fixed annuity, the insurance company guarantees both the rate of return (the interest rate) and the payout to the investor.
The specified interest rate is set upfront and so is the length of the contract. For instance, a 5 year fixed annuity with a 3.10% interest rate will pay 3.10% for 5 years guaranteed.
At the end of your initial guarantee period, you will be offered a new interest rate which is called a renewal rate. You will typically have a 30-day window to decide whether or not you want to accept the renewal rate or transfer your money somewhere else.
You are able to transfer to a new annuity without any tax consequences using a 1035 exchange.
Source: “Learn to Invest, Investment Types, Annuities, Fixed Annuities.” Financial Industry Regulatory Authority (FINRA). Visit FINRA’s Fixed Annuities Webpage
Fixed annuities behave similarly to a certificate of deposit (CD). Each of them provides principal protection, meaning your account value will not decrease due to market performance. Fixed Annuity Rates are generally higher than CD rates.
A fixed annuity, or MYGA, guarantees a set interest rate for a specified period of time – just like a CD. However, Fixed annuity guarantees are backed by the claims-paying ability of the issuing insurance company and are not insured by the FDIC like a CD.
You can view your state’s guarantee association’s annuity coverage limit by visit our State Insurance Guaranty Associations page. The associations provide a safety net for their state’s annuity owners and guarantee policyholders continue to receive coverage.
|FIXED ANNUITY||CD (CERTIFICATE OF DEPOSIT)|
|SOLD BY||Insurance Companies||Banks|
|AMOUNT YOU CAN INVEST||$2,000 - $1,000,000||Essentially Any Amount|
|INVESTMENT DURATION||3 years - 10 years||3 months - 5 years|
|INTEREST RATES||Rates by product but usually higher.||Varies by financial institution, term and investment amount.|
|LIQUIDITY||Usually, 10% annually or interest earned.||Almost always accumulated interest.|
|GUARANTEES||The claims-paying ability to issue Insurer and by State Guaranty Funds.||Backed by the FDIC up to $250,000 per depositor, per institution.|
|DEATH BENEFIT||Passed directly to the beneficiary without probate process.||Probate process required.|
The Internal Revenue Service (IRS) allows you to exchange an annuity policy that you own for a new annuity policy without paying tax on the investment gains earned on the original contract.
This rule is governed by Section 1035 of the Internal Revenue Code which is why these are called “1035 Exchanges.”
Below is a direct link to the complete text of the code.
There are a couple of important rules that must be followed in order to receive the benefits of a 1035 Exchange.
Here is an example of an actual 1035 Exchange form you would need to complete to move from one annuity to another via a 1035 Exchange.
The primary advantage of using a 1035 exchange to change your life insurance policy or annuity choices is to avoid triggering taxes on those transactions.
As long as you’re exchanging contracts within the guidelines set by the IRS you all of the above events will be tax-free to you.
Fixed annuities are the most simple of any annuity which also makes them the easiest to shop for. Below are a few features to consider other than the guaranteed fixed annuity rate when you are considering a fixed annuity.
The deciding factor on how your fixed annuity will ultimately be taxed depends ultimately on the money you used to buy it.
If you purchase a fixed annuity with funds from a Roth individual retirement account (IRA) or Roth 401(k) it is very likely you won’t have to pay federal income tax at all on the money when you withdraw it from your annuity. That includes the principal and interest.
Firstly, an annuity purchased with qualified funds is considered a qualified annuity. Qualified funds are monies that you have never paid taxes on such as a traditional IRA or a traditional 401(k). It would be nice if the IRS would allow going from tax-deferred to tax-free but that is not the case.
A non-qualified fixed annuity is an annuity purchased with after tax-dollars such as money from a taxable personal savings or checking account or a personal brokerage account.
If you own a non-qualified annuity, you will only pay income tax on the interest you earn from the annuity but not the funds you used to purchase it. Insurance companies keep track of your “cost-basis” which is the original amount used to purchase an investment.
A “CD Type Annuity” is a type of fixed annuity that guarantees a specified interest rate for a set number of years. They are also often referred to as a Multi Year Guaranteed Annuity.
When you purchase an annuity contract you are committing to leave your money there for the duration of your annuity (usually 2 to 10 years). However, most fixed annuities allow to take free withdrawals of interest earned or up to 10% free withdrawals annually (varies by annuity company and contract)
There are no fees for any of the fixed annuities listed on this page and in general, fixed annuities do not have any fees. However, there are some fixed annuity products that offer optional income riders, death benefit riders, or long term care riders for an additional annual fee.