Purchasing MYGAs (multi year guaranteed annuities) - mega thread

[birdbard]

Sidebar: Oceanview compounds interest daily. Do other companies generally do this?

The Ibexis annuity I got noted it was "simple interest" which means no compound interest. So not sure how often they might post the interest, and I guess it doesn't even matter until the year is complete. So on that one, will always take all the interest as soon as it is allowed after the first year.

Yes, all of the MYGAs I’ve seen compound interest daily. Some of the carrier websites show day-by-day interest crediting detail, with the daily amount of interest creeping up over time.

The Ibexis product is the only one that I am aware of that credits simple interest. The natural (and really only) customer for this product is one who wants to withdraw all interest as it is earned.

Yes, it was the only one I saw too. It was the highest interest bearing I saw at blueprint. Oceanview was the next highest that met my criteria (10% withdrawal allowance, A- or better rating).

Not super accurate but my excel calcs said it would take about 3 years for the Oceanview to exceed the Ibexis in total interest while withdrawing, so I figured I'd give it a shot. But if I don't retire in 2026 for some reason and/or interest rates trend a bit lower, and I leave them to accumulate for a bit, I will take the interest only out of ibexis and deploy else where.

[birdbard]

got my ibexis acct number and established online access. Money plus some interest was there! Whew!

for both, seemed about a week between money existing brokerage and establising acct. and earning interest. So - not too bad.

ibexis website not as smooth looking as oceanview. Uses okta for authentication, and actual site looks old fasioned to me, but seems ok. Looks like you have to submit a written form and cancelled check to initiate payments, so - yeah. Old fashioned!

[Stinky]

Today marks four years since I started this thread.

It’s proved to be a long-lived and active thread. It’s received over 3,000 posts and over 420,000 views since 12/31/2020.

The MYGA market has changed a lot since late 2020. Back then, many MYGA rates were in the 2.50-3.00% range, which seems low today. But those rates were attractive compared to bond funds that were paying less than 1% at the time. Folks who bought MYGAs at that time (and especially those who have made free partial withdrawals) have generally come out well compared to those who purchased bond funds then.

MYGA rates touched 6% in 2023, and have retreated somewhat during 2024. But there are still many products available, from well-rated companies, with rates higher than 5%.

I appreciate all those folks who have posted to this thread. And I hope that this thread has been useful to many in the Boglehead community.

[bogles the mind]

It has been very useful reading this thread. Thanks for your time.

[CletusCaddy]

Folks who bought MYGAs at that time (and especially those who have made free partial withdrawals) have generally come out well compared to those who purchased bond funds then.

Not the right comparison since a bond fund has constant duration while the MYGA is declining.

Better to compare MYGA performance against a defined maturity bond basket like iShares iBonds.

[tj]

Folks who bought MYGAs at that time (and especially those who have made free partial withdrawals) have generally come out well compared to those who purchased bond funds then.

Not the right comparison since a bond fund has constant duration while the MYGA is declining.

Better to compare MYGA performance against a defined maturity bond basket like iShares iBonds.

Seems like the easiest comparisons would be 3 year MYGA vs 3 year CD vs 3 year treasury bond.

[CletusCaddy]

Not the right comparison since a bond fund has constant duration while the MYGA is declining.

Better to compare MYGA performance against a defined maturity bond basket like iShares iBonds.

Seems like the easiest comparisons would be 3 year MYGA vs 3 year CD vs 3 year treasury bond.

MYGAs hold mostly corporate fixed income

[tj]

Seems like the easiest comparisons would be 3 year MYGA vs 3 year CD vs 3 year treasury bond.

MYGAs hold mostly corporate fixed income

I don't think most people considering MYGA are going to consider a 3 year corporate bond, even a 3 year corporate bond ETF.

[discman017]

Today marks four years since I started this thread.

It’s proved to be a long-lived and active thread. It’s received over 3,000 posts and over 420,000 views since 12/31/2020.

The MYGA market has changed a lot since late 2020. Back then, many MYGA rates were in the 2.50-3.00% range, which seems low today. But those rates were attractive compared to bond funds that were paying less than 1% at the time. Folks who bought MYGAs at that time (and especially those who have made free partial withdrawals) have generally come out well compared to those who purchased bond funds then.

MYGA rates touched 6% in 2023, and have retreated somewhat during 2024. But there are still many products available, from well-rated companies, with rates higher than 5%.

I appreciate all those folks who have posted to this thread. And I hope that this thread has been useful to many in the Boglehead community.

Thanks so much for this thread! It's been very useful to me. I bought a bit early, in 2022 when MYGA rates were around 4.5%, but like you said, I will have outperformed bond funds, both because the initial rate was about 1.5% higher than bonds and because of the option to take annual withdrawals and reinvest at a higher rate.

My 2022 MYGAs were all qualified retirement plans, and this month I invested some non-qualified funds with Canvas and Gainbridge. Rates are still very attractive, and the tax deferral and optional annual withdrawal are great features. We'll have kids starting college in the next couple of years too, so deferring income, thereby avoiding it counting for financial aid purposes, is a big bonus.

Thanks again for your leadership in educating us about this very useful investment!

[discman017]

I don't think most people considering MYGA are going to consider a 3 year corporate bond, even a 3 year corporate bond ETF.

Why not? I would definitely consider a bond ETF as an alternative to a MYGA of similar duration for the fixed-income portion of my portfolio.

Problem is the yield on a bond ETF will be lower unless it's taking significant credit risk. The combination of above-market yields and state insurance generally makes MYGAs the clear winner.

[tj]

I don't think most people considering MYGA are going to consider a 3 year corporate bond, even a 3 year corporate bond ETF.

Why not? I would definitely consider a bond ETF as an alternative to a MYGA of similar duration for the fixed-income portion of my portfolio.

Problem is the yield on a bond ETF will be lower unless it's taking significant credit risk. The combination of above-market yields and state insurance generally makes MYGAs the clear winner.

Because I Don't think it's common for people to pursue corporate bonds independently. We always here If want to increase risk, increase equity allocation.

I thought MYGAs appeal to people because of the perceived safety of the insurance company....not what the insurance company invests in.

[discman017]

Because I Don't think it's common for people to pursue corporate bonds independently. We always here If want to increase risk, increase equity allocation.

I thought MYGAs appeal to people because of the perceived safety of the insurance company....not what the insurance company invests in.

Huh. OK. I would absolutely consider Vanguard's bond ETFs as an alternative to a MYGA.

Just looks like another fixed-income investment to me. CDs, MYGAs, bond ETFs all fill the fixed-income side of my portfolio.

I definitely disagree with "only take risk on the equity side". We wouldn't even be in this discussion topic if that were the mindset. MYGAs have more risk than, say, a federally insured CD or savings account.

The question is whether you're getting paid to take on that risk. I believe the added return on MYGAs makes them a good investment relative to FDIC-insured options and bond ETFs.

[jhblegend]

Just looks like another fixed-income investment to me. CDs, MYGAs, bond ETFs all fill the fixed-income side of my portfolio.

I definitely disagree with "only take risk on the equity side". We wouldn't even be in this discussion topic if that were the mindset. MYGAs have more risk than, say, a federally insured CD or savings account.

Agree with your 2nd point, while MYGAs are conservative, they are riskier than FDIC-insured funds.

Disagree with your 1st point, one of the primary driving factors of MYGAs (and life insurance products generally) is their tax-deferred characteristics.

[birdbard]

Today marks four years since I started this thread.

It’s proved to be a long-lived and active thread. It’s received over 3,000 posts and over 420,000 views since 12/31/2020.

The MYGA market has changed a lot since late 2020. Back then, many MYGA rates were in the 2.50-3.00% range, which seems low today. But those rates were attractive compared to bond funds that were paying less than 1% at the time. Folks who bought MYGAs at that time (and especially those who have made free partial withdrawals) have generally come out well compared to those who purchased bond funds then.

MYGA rates touched 6% in 2023, and have retreated somewhat during 2024. But there are still many products available, from well-rated companies, with rates higher than 5%.

I appreciate all those folks who have posted to this thread. And I hope that this thread has been useful to many in the Boglehead community.

Thnk you Stinky!

really appreciate you sharing your knowledge! I've learned a lot and it was reassuring to have someone so knowledgable help me out.

[tman9999]

Me, ca. 2020: “MYGA? A whaat? All annuities = BAD.”
Me, Feb 2024: I just set up my five year hybrid TBond/MYGA ladder, which will bridge me most of the way to age 70/max SSA claiming age.

But for this thread I’m pretty sure I wouldn’t have ever heard of these or Gainbridge or StanTheAnnuityMan (from whom I purchased my MYGAs). Thanks, @stinky and everyone else. (And nice retrospective on the thread!).

[discman017]

Agree with your 2nd point, while MYGAs are conservative, they are riskier than FDIC-insured funds.

Disagree with your 1st point, one of the primary driving factors of MYGAs (and life insurance products generally) is their tax-deferred characteristics.

Agree with both of those points.

In the case of a qualified MYGA, you already have the tax deferral in the existing IRA, so you're choosing a MYGA vs. other fixed-income assets based on risk/reward profile. For a non-qualified MYGA, you're right, the MYGA gives you tax deferral on top of its other benefits.

[bog007]

ty stinky, i'm in at 6.3% for a while yo

and a happy new year to all

[Stinky]

Following is a link to my current thoughts about the A-CAP (Sentinel Security and Atlantic Coast) situation.

viewtopic.php?p=8184877#p8184877

[tj]

Following is a link to my current thoughts about the A-CAP (Sentinel Security and Atlantic Coast) situation.

viewtopic.php?p=8184877#p8184877

A fascinating tale. Hopefully you have a better experience vs the people with that Colorado insurer.

[Stinky]

Following is a link to my current thoughts about the A-CAP (Sentinel Security and Atlantic Coast) situation.

viewtopic.php?p=8184877#p8184877

A fascinating tale. Hopefully you have a better experience vs the people with that Colorado insurer.

Colorado Bankers just went into liquidation mode on 11/30/24, after about 5.5 years in “receivership”. During the period of receivership, policyholders were granted only very limited access to their policies, and couldn’t fully surrender them. Now that the liquidation process has started, the guaranty associations are stepping in.

In my view, the Colorado Bankers receivership time was dragged out by an extremely litigious owner of the companies, who threw up roadblocks to resolving the companies numerous times. Most receiverships are resolved more rapidly than Colorado Bankers.

Time will tell whether the A-CAP companies are placed into receivership, and if so, how long it will take to resolve the receivership.

[LadyGeek]

Following is a link to my current thoughts about the A-CAP (Sentinel Security and Atlantic Coast) situation.

viewtopic.php?p=8184877#p8184877

Thanks for the updates.

Those wishing to continue the discussion should post in that thread. Annuity concerns with Bermuda reinsurance [A-CAP (Sentinel Security and Atlantic Coast) policies at risk]

[Stinky]

t looks like the A-CAP companies are fighting the recent regulatory orders that the companies cease writing new business.

Sentinel Security has a court trial set for March 2025 to dispute the Utah Department of Insurance order, while Atlantic Coast Life has gotten a judge to (at least for now) pause the order from the South Carolina Department of Insurance.

https://insurancenewsnet.com/innarticle ... coast-life

[Stinky]

As a California resident, to get around the tax that would be charged if I annuitized the funds from my MYGAs, I plan (eventually, when I'm 59.5+ years old) to do 10% annual penalty-free withdrawals. I'll 1035 the MYGAs into new MYGAs when they mature and keep going with 8% to 10% annual penalty-free withdrawals until the MYGAs are all gone between age 75 and 80.

You sent me a private message earlier today.

I can’t respond to your private message because your Forum settings don’t allow you to receive PMs.

I will respond if you change your settings.

[Weathering]

As a California resident, to get around the tax that would be charged if I annuitized the funds from my MYGAs, I plan (eventually, when I'm 59.5+ years old) to do 10% annual penalty-free withdrawals. I'll 1035 the MYGAs into new MYGAs when they mature and keep going with 8% to 10% annual penalty-free withdrawals until the MYGAs are all gone between age 75 and 80.

You sent me a private message earlier today.

I can’t respond to your private message because your Forum settings don’t allow you to receive PMs.

I will respond if you change your settings.

Thanks! I fixed my settings. Reply away.

[OkanePlease]

Stinky and all, are there any other investment options that defer interest and dividends to a much later date, preferably a few years or more (even indefinitely until selling)? I'm sitting on a big chunk of bond funds with increasingly high dividend distributions. I already have a number of MYGAs, so not sure I want to increase my position in them, but looking to reduce my reportable income for federal returns for a few years.

Thanks, and sorry if this has already been asked previously in this mega-thread!

[indexfundfan]

Stinky and all, are there any other investment options that defer interest and dividends to a much later date, preferably a few years or more (even indefinitely until selling)? I'm sitting on a big chunk of bond funds with increasingly high dividend distributions. I already have a number of MYGAs, so not sure I want to increase my position in them, but looking to reduce my reportable income for federal returns for a few years.

Thanks, and sorry if this has already been asked previously in this mega-thread!

If you don't want more MYGAs, you can look at Fidelity's variable annuity. The expenses are higher compared to regular funds though, and you have to pay an additional 0.25% in annuity wrapper charge. For example, the following is the total bond index

https://fundresearch.fidelity.com/annui ... mary/FBIQC

[OkanePlease]

Stinky and all, are there any other investment options that defer interest and dividends to a much later date, preferably a few years or more (even indefinitely until selling)? I'm sitting on a big chunk of bond funds with increasingly high dividend distributions. I already have a number of MYGAs, so not sure I want to increase my position in them, but looking to reduce my reportable income for federal returns for a few years.

Thanks, and sorry if this has already been asked previously in this mega-thread!

If you don't want more MYGAs, you can look at Fidelity's variable annuity. The expenses are higher compared to regular funds though, and you have to pay an additional 0.25% in annuity wrapper charge. For example, the following is the total bond index

https://fundresearch.fidelity.com/annui ... mary/FBIQC

Wow, there's next to nothing on the Internet about FBIQC, the fund you linked to, indexfundfan. Are there really no distributions for that fund, dividends or otherwise?

ETA: Ah, looks like I have to see FBIQC via Fidelity's FPRA (Fidelity Personal Retirement Annuity) page. That name tricks me a bit, as it initially leads me to believe it's only for retirement (IRA) accounts. Will need to research more deeply...

[Stinky]

If you don't want more MYGAs, you can look at Fidelity's variable annuity. The expenses are higher compared to regular funds though, and you have to pay an additional 0.25% in annuity wrapper charge. For example, the following is the total bond index

https://fundresearch.fidelity.com/annui ... mary/FBIQC

Wow, there's next to nothing on the Internet about FBIQC, the fund you linked to, indexfundfan. Are there really no distributions for that fund, dividends or otherwise?

ETA: Ah, looks like I have to see FBIQC via Fidelity's FPRA (Fidelity Personal Retirement Annuity) page. That name tricks me a bit, as it initially leads me to believe it's only for retirement (IRA) accounts. Will need to research more deeply...

I agree that a low cost variable annuity like the Fidelity product mentioned here is another way of deferring recognition of taxable income.

I believe that the mutual funds available through the VA product are unique to the VA, and not available for general purchase outside the VA. That being said, they are relatively low-cost, Fidelity-managed funds.

Like all annuities, all income (even that generated from equity mutual funds) on variable annuities is reported as ordinary income for tax purposes, rather than the preferential treatment accorded to capital gains and qualified dividends on assets held in a regular taxable account. And there is no step up at death.

[indexfundfan]

Like all annuities, all income (even that generated from equity mutual funds) on variable annuities is reported as ordinary income for tax purposes, rather than the preferential treatment accorded to capital gains and qualified dividends on assets held in a regular taxable account. And there is no step up at death.

Just to clarify, Stinky is referring to the fact that the gains and income from annuities are reported as ordinary income for tax purposes IF you proactively take a distribution (withdrawal). If you don't make a withdrawal, all the gains are deferred and there is no tax due.

[HueyLD]

Like all annuities, all income (even that generated from equity mutual funds) on variable annuities is reported as ordinary income for tax purposes, rather than the preferential treatment accorded to capital gains and qualified dividends on assets held in a regular taxable account. And there is no step up at death.

Just to clarify, Stinky is referring to the fact that the gains and income from annuities are reported as ordinary income for tax purposes IF you proactively take a distribution (withdrawal). If you don't make a withdrawal, all the gains are deferred and there is no tax due.

In addition to the above facts, withdrawals from VAs are “last in, first out (LIFO),” meaning that all withdrawals are considered ordinary income until you exhaust all income within a VA.

The only exception to the LIFO rule is if you annuitize the payouts.

[OkanePlease]

Just to clarify, Stinky is referring to the fact that the gains and income from annuities are reported as ordinary income for tax purposes IF you proactively take a distribution (withdrawal). If you don't make a withdrawal, all the gains are deferred and there is no tax due.

In addition to the above facts, withdrawals from VAs are “last in, first out (LIFO),” meaning that all withdrawals are considered ordinary income until you exhaust all income within a VA.

The only exception to the LIFO rule is if you annuitize the payouts.

Thanks for all the guidance on the Fidelity PRA (FPRA) and variable annuities (VA) in general. I don't want to hijack this great thread, and will research this on my own, but just to see if my initial understanding is correct. If I invest 100K in (for example) a bond fund via FPRA that magically earns 4.0% annually, such that in 5 years the account balance is about 125K. At that juncture, if I withdraw 25K or more, I will be taxed on 25K as earned income? And after that, withdrawals will be tax-free (save for any additional interest that accumulates)?

I also need to learn whether the NAV would change in a variable annuity.

[Stinky]

Thanks for all the guidance on the Fidelity PRA (FPRA) and variable annuities (VA) in general. I don't want to hijack this great thread, and will research this on my own, but just to see if my initial understanding is correct. If I invest 100K in (for example) a bond fund via FPRA that magically earns 4.0% annually, such that in 5 years the account balance is about 125K. At that juncture, if I withdraw 25K or more, I will be taxed on 25K as earned income? And after that, withdrawals will be tax-free (save for any additional interest that accumulates)?

I also need to learn whether the NAV would change in a variable annuity.

You're not "hijacking" anything with your good question.

Your understanding of how taxation would work on a bond fund inside a variable annuity is correct. You would have taxable income of $25k reported to you if you withdrew $25k or more from the annuity. (You would have an additional 10% penalty tax if you're under age 59.5 when you withdraw.)

Also, the NAV of all mutual funds within a variable annuity, both bond funds and equity funds, does change daily. Just as the NAV of mutual funds outside of a variable annuity change daily.

[tj]

In addition to the above facts, withdrawals from VAs are “last in, first out (LIFO),” meaning that all withdrawals are considered ordinary income until you exhaust all income within a VA.

The only exception to the LIFO rule is if you annuitize the payouts.

Thanks for all the guidance on the Fidelity PRA (FPRA) and variable annuities (VA) in general. I don't want to hijack this great thread, and will research this on my own, but just to see if my initial understanding is correct. If I invest 100K in (for example) a bond fund via FPRA that magically earns 4.0% annually, such that in 5 years the account balance is about 125K. At that juncture, if I withdraw 25K or more, I will be taxed on 25K as earned income? And after that, withdrawals will be tax-free (save for any additional interest that accumulates)?

I also need to learn whether the NAV would change in a variable annuity.

To be clear, distributions from an annuity is not earned income. Earned income is income from a job or self-employment.

[OkanePlease]

Thanks for all the guidance on the Fidelity PRA (FPRA) and variable annuities (VA) in general. I don't want to hijack this great thread, and will research this on my own, but just to see if my initial understanding is correct. If I invest 100K in (for example) a bond fund via FPRA that magically earns 4.0% annually, such that in 5 years the account balance is about 125K. At that juncture, if I withdraw 25K or more, I will be taxed on 25K as earned income? And after that, withdrawals will be tax-free (save for any additional interest that accumulates)?

I also need to learn whether the NAV would change in a variable annuity.

You're not "hijacking" anything with your good question.

Your understanding of how taxation would work on a bond fund inside a variable annuity is correct. You would have taxable income of $25k reported to you if you withdrew $25k or more from the annuity. (You would have an additional 10% penalty tax if you're under age 59.5 when you withdraw.)

Also, the NAV of all mutual funds within a variable annuity, both bond funds and equity funds, does change daily. Just as the NAV of mutual funds outside of a variable annuity change daily.

So how does the changing NAV play out in terms of capital gains/losses for tax purposes? Or is that what also helps determines my overall (hopeful) gain when I start withdrawing money. (Since I know it will be a bond fund, and likely just for a few years, I'd think the NAV wouldn't change dramatically, like more than 10%, in that amount of time. I say that knowing that bond funds like VBTLX have dropped about 20% in the past few years.)

[Stinky]

You're not "hijacking" anything with your good question.

Your understanding of how taxation would work on a bond fund inside a variable annuity is correct. You would have taxable income of $25k reported to you if you withdrew $25k or more from the annuity. (You would have an additional 10% penalty tax if you're under age 59.5 when you withdraw.)

Also, the NAV of all mutual funds within a variable annuity, both bond funds and equity funds, does change daily. Just as the NAV of mutual funds outside of a variable annuity change daily.

So how does the changing NAV play out in terms of capital gains/losses for tax purposes? Or is that what also helps determines my overall (hopeful) gain when I start withdrawing money. (Since I know it will be a bond fund, and likely just for a few years, I'd think the NAV wouldn't change dramatically, like more than 10%, in that amount of time. I say that knowing that bond funds like VBTLX have dropped about 20% in the past few years.)

Variable annuities don't play into capital gains or losses. Rather, they play into ordinary taxable income.

Let's use another example. Let's say that you purchase a variable annuity for $100k.
--- If the NAV of the underlying mutual funds GOES UP by $10k on the next day, and then you surrender, you'll have taxable ordinary income of $10k reported to you.
--- If the NAV of the underlying mutual funds GOES DOWN by $10k on the next day, and then you surrender, you'll have no taxable income (or loss) to report.

[indexfundfan]

You're not "hijacking" anything with your good question.

Your understanding of how taxation would work on a bond fund inside a variable annuity is correct. You would have taxable income of $25k reported to you if you withdrew $25k or more from the annuity. (You would have an additional 10% penalty tax if you're under age 59.5 when you withdraw.)

Also, the NAV of all mutual funds within a variable annuity, both bond funds and equity funds, does change daily. Just as the NAV of mutual funds outside of a variable annuity change daily.

So how does the changing NAV play out in terms of capital gains/losses for tax purposes? Or is that what also helps determines my overall (hopeful) gain when I start withdrawing money. (Since I know it will be a bond fund, and likely just for a few years, I'd think the NAV wouldn't change dramatically, like more than 10%, in that amount of time. I say that knowing that bond funds like VBTLX have dropped about 20% in the past few years.)

Whether your return is from capital gains or interest is immaterial when it comes to annuities. You need to think in terms of the your cost basis.

If you put in $100k in the annuity, your cost basis is $100k. If the value grows to $120k and you withdraw $25k, then the rules are that

1) Your withdrawal is always interest (or gain) first. Your gain is $20k and this $20k will be added to your income for the year.
2) The remainder will be a withdrawal from principal and it reduces your cost basis. So the remaining $5k withdrawal is NOT taxable, and you will have a new cost basis of $95k going forward in the annuity.

[OkanePlease]

So how does the changing NAV play out in terms of capital gains/losses for tax purposes? Or is that what also helps determines my overall (hopeful) gain when I start withdrawing money. (Since I know it will be a bond fund, and likely just for a few years, I'd think the NAV wouldn't change dramatically, like more than 10%, in that amount of time. I say that knowing that bond funds like VBTLX have dropped about 20% in the past few years.)

Whether your return is from capital gains or interest is immaterial when it comes to annuities. You need to think in terms of the your cost basis.

If you put in $100k in the annuity, your cost basis is $100k. If the value grows to $120k and you withdraw $25k, then the rules are that

1) Your withdrawal is always interest (or gain) first. Your gain is $20k and this $20k will be added to your income for the year.
2) The remainder will be a withdrawal from principal and it reduces your cost basis. So the remaining $5k withdrawal is NOT taxable, and you will have a new cost basis of $95k going forward in the annuity.

Thanks again, Stinky and indexfundfan.

In my situation, where I'm specifically looking for an alternative to my outsized position of Vanguard Total Bond Fund (VBTLX, in a taxable account) and the increasing amount of dividends monthly that are nice but driving up my MAGI, MYGAs have the most appeal in terms of tax deferral (especially now) because of attractive, locked-in interest rates. But I feel like I've reached my desired upper limit on MYGA funds. So, again specific to my situation (and with appreciation to indexfundfan for informing me about it), a 100% investment in a bond fund (similar to VBTLX) within a Fidelity Personal Retirement Annuity looks like the next-best option. Replacing VBTLX with a like fund in the annuity should produce a similar yield to what I'm currently getting with VBTLX, but without need to report the income for now. Pro compared to a MYGA: I can sell the fund partially or fully anytime without penalty, as I'm over 59-1/2. Con: I do have to pay an additional wrapper fee to Fidelity of .25%. (Also some assorted other things, like no stepped-up basis.) In my case, I think this might be worth it.

[indexfundfan]

Whether your return is from capital gains or interest is immaterial when it comes to annuities. You need to think in terms of the your cost basis.

If you put in $100k in the annuity, your cost basis is $100k. If the value grows to $120k and you withdraw $25k, then the rules are that

1) Your withdrawal is always interest (or gain) first. Your gain is $20k and this $20k will be added to your income for the year.
2) The remainder will be a withdrawal from principal and it reduces your cost basis. So the remaining $5k withdrawal is NOT taxable, and you will have a new cost basis of $95k going forward in the annuity.

Thanks again, Stinky and indexfundfan.

In my situation, where I'm specifically looking for an alternative to my outsized position of Vanguard Total Bond Fund (VBTLX, in a taxable account) and the increasing amount of dividends monthly that are nice but driving up my MAGI, MYGAs have the most appeal in terms of tax deferral (especially now) because of attractive, locked-in interest rates. But I feel like I've reached my desired upper limit on MYGA funds. So, again specific to my situation (and with appreciation to indexfundfan for informing me about it), a 100% investment in a bond fund (similar to VBTLX) within a Fidelity Personal Retirement Annuity looks like the next-best option. Replacing VBTLX with a like fund in the annuity should produce a similar yield to what I'm currently getting with VBTLX, but without need to report the income for now. Pro compared to a MYGA: I can sell the fund partially or fully anytime without penalty, as I'm over 59-1/2. Con: I do have to pay an additional wrapper fee to Fidelity of .25%. (Also some assorted other things, like no stepped-up basis.) In my case, I think this might be worth it.

I think you have a good understanding of the tradeoffs.

Another thing : I believe the annuity wrapper fee drops from 0.25% to 0.1% if you hit $1m.

https://fundresearch.fidelity.com/annui ... mary/FBIRC

[babystep]

Whether your return is from capital gains or interest is immaterial when it comes to annuities. You need to think in terms of the your cost basis.

If you put in $100k in the annuity, your cost basis is $100k. If the value grows to $120k and you withdraw $25k, then the rules are that

1) Your withdrawal is always interest (or gain) first. Your gain is $20k and this $20k will be added to your income for the year.
2) The remainder will be a withdrawal from principal and it reduces your cost basis. So the remaining $5k withdrawal is NOT taxable, and you will have a new cost basis of $95k going forward in the annuity.

Thanks again, Stinky and indexfundfan.

In my situation, where I'm specifically looking for an alternative to my outsized position of Vanguard Total Bond Fund (VBTLX, in a taxable account) and the increasing amount of dividends monthly that are nice but driving up my MAGI, MYGAs have the most appeal in terms of tax deferral (especially now) because of attractive, locked-in interest rates. But I feel like I've reached my desired upper limit on MYGA funds. So, again specific to my situation (and with appreciation to indexfundfan for informing me about it), a 100% investment in a bond fund (similar to VBTLX) within a Fidelity Personal Retirement Annuity looks like the next-best option. Replacing VBTLX with a like fund in the annuity should produce a similar yield to what I'm currently getting with VBTLX, but without need to report the income for now. Pro compared to a MYGA: I can sell the fund partially or fully anytime without penalty, as I'm over 59-1/2. Con: I do have to pay an additional wrapper fee to Fidelity of .25%. (Also some assorted other things, like no stepped-up basis.) In my case, I think this might be worth it.

This is pretty good summary. Can you add more details to bold part? Specifically, why do you think some upper limit is reached?

I looked at it from the tax-cost of S&P 500 dividends which can be a drag of about 0.5% when dividends were about 1.5%. Obviously, the conversion of dividends and capital gains into ordinary income was off putting. The numbers didn't work out. I wonder if anyone else considered this.

I will add another cost to your equation. Expense ratio of VBTLX is about 0.05% and corresponding Fidelity bond fund's net expense ratio is 0.14%. One has to consider this additional difference of 0.09%. It means total additional cost is 0.34% (for funds under 1M). It might still be worth it depending on the tax rate differential between now and later.

It makes me wonder why doesn't US government take my money and give me my money back with interest, but only after 10 years instead of paying interest every 6 months? Similar to EE bonds but larger scale.

[EvelynTroy]

Related to the Atlantic Coast/Sentinel financial problems thought I would share my experience today - in particular for BluePrint Income clients who hold either of these firm's annuities.
Like others I was shocked to hear of these problems - frankly after reading the other thread (Annuity Concerns with Bermuda...) I was overwhelmed and became anxious -
My Atlantic account is a 5 year MYGA @ 2.75% that terminates 12/15/2025. If I surrendered my policy it would cost about $2,600 - so not too bad. Back almost 5 yrs. ago that was a great interest rate - things change.

I decided to phone BluePrint Income they sold me the MYGA - I knew they couldn't give me direct recommendation to surrender or wait until December. But thought perhaps they could explain and provide options to think about. I tip my cap and thank BluePrint - IMO they represent customer service at its best. No wait time. Neil was in absolutely no rush to move on to the next caller - patiently explained the situation with both of these companies and what would happen if in my case Atlantic went into receivership.
In summary - he detailed what Stinky and others had explained about the overall situation. Neil noted they have been in touch with Atlantic and he felt the firm is taking positive steps to move money out of the bad offshore outfit, and they have raised additional capital. Atlantic advised they absolutely on good financial grounds and are actively working to rectify the problems. Neil thought that was a good sign, but bottom line they mis-managed folks money.

The direction he provided for me was:
Do you need the money in the near term (within the next year or so)? For me NO.
As has been noted - two options wait until December 2025 and terminate, or terminate now.
Neil noted few clients had terminated recently and it took around two weeks to get their funds.
I'm going to wait - worse case scenario Atlantic goes into receivership I will still get my funds plus interest albeit it can be lengthy couple of years process.

BluePrint is happy to talk with their clients - I found it reassuring. Each is different though.

Good Luck. Evelyn

PS - Hope this was the right discussion to post the above. Maybe I should have posted in the Annuity Concerns with Bermuda.... one - Apologize if I created confusion. WOOPS. Editing again, now I see this is really all old news. I haven't visited bogleheads in awhile. Sorry.

[Stinky]

Related to the Atlantic Coast/Sentinel financial problems thought I would share my experience today - in particular for BluePrint Income clients who hold either of these firm's annuities.
Like others I was shocked to hear of these problems - frankly after reading the other thread (Annuity Concerns with Bermuda...) I was overwhelmed and became anxious -
My Atlantic account is a 5 year MYGA @ 2.75% that terminates 12/15/2025. If I surrendered my policy it would cost about $2,600 - so not too bad. Back almost 5 yrs. ago that was a great interest rate - things change.

I decided to phone BluePrint Income they sold me the MYGA - I knew they couldn't give me direct recommendation to surrender or wait until December. But thought perhaps they could explain and provide options to think about. I tip my cap and thank BluePrint - IMO they represent customer service at its best. No wait time. Neil was in absolutely no rush to move on to the next caller - patiently explained the situation with both of these companies and what would happen if in my case Atlantic went into receivership.
In summary - he detailed what Stinky and others had explained about the overall situation. Neil noted they have been in touch with Atlantic and he felt the firm is taking positive steps to move money out of the bad offshore outfit, and they have raised additional capital. Atlantic advised they absolutely on good financial grounds and are actively working to rectify the problems. Neil thought that was a good sign, but bottom line they mis-managed folks money.

The direction he provided for me was:
Do you need the money in the near term (within the next year or so)? For me NO.
As has been noted - two options wait until December 2025 and terminate, or terminate now.
Neil noted few clients had terminated recently and it took around two weeks to get their funds.
I'm going to wait - worse case scenario Atlantic goes into receivership I will still get my funds plus interest albeit it can be lengthy couple of years process.

BluePrint is happy to talk with their clients - I found it reassuring. Each is different though.

Good Luck. Evelyn

PS - Hope this was the right discussion to post the above. Maybe I should have posted in the Annuity Concerns with Bermuda.... one - Apologize if I created confusion. WOOPS. Editing again, now I see this is really all old news. I haven't visited bogleheads in awhile. Sorry.

Evelyn,

Thanks so much for posting your experience here. It adds another valuable data point to what we know about the situation with Atlantic Coast (and likely with Sentinel Security also).

I've been posting based on news articles that I find, and also based on what I'm seeing as the Colorado Bankers situation moves toward finalization. But what I don't have is any first-person knowledge as to what's going on, and you filled that in with your discussion with Blueprint. I'm glad that Neil was informative and gave you some good input.

I'm also glad to hear that Atlantic Coast seems to be (currently) processing surrenders in a (reasonably) timely fashion. Two weeks seems to be a little long, but just about par for the course.

Thanks again for providing a very useful update for those who are following this thread.

Wayne aka Stinky

EDITED TO ADD - For what it's worth, I'm in a generally similar situation with Sentinel/Atlantic as was reported by Helen. So I also found the update to be personally useful to me.

[OkanePlease]

Thanks again, Stinky and indexfundfan.

In my situation, where I'm specifically looking for an alternative to my outsized position of Vanguard Total Bond Fund (VBTLX, in a taxable account) and the increasing amount of dividends monthly that are nice but driving up my MAGI, MYGAs have the most appeal in terms of tax deferral (especially now) because of attractive, locked-in interest rates. But I feel like I've reached my desired upper limit on MYGA funds. So, again specific to my situation (and with appreciation to indexfundfan for informing me about it), a 100% investment in a bond fund (similar to VBTLX) within a Fidelity Personal Retirement Annuity looks like the next-best option. Replacing VBTLX with a like fund in the annuity should produce a similar yield to what I'm currently getting with VBTLX, but without need to report the income for now. Pro compared to a MYGA: I can sell the fund partially or fully anytime without penalty, as I'm over 59-1/2. Con: I do have to pay an additional wrapper fee to Fidelity of .25%. (Also some assorted other things, like no stepped-up basis.) In my case, I think this might be worth it.

This is pretty good summary. Can you add more details to bold part? Specifically, why do you think some upper limit is reached?

I looked at it from the tax-cost of S&P 500 dividends which can be a drag of about 0.5% when dividends were about 1.5%. Obviously, the conversion of dividends and capital gains into ordinary income was off putting. The numbers didn't work out. I wonder if anyone else considered this.

I will add another cost to your equation. Expense ratio of VBTLX is about 0.05% and corresponding Fidelity bond fund's net expense ratio is 0.14%. One has to consider this additional difference of 0.09%. It means total additional cost is 0.34% (for funds under 1M). It might still be worth it depending on the tax rate differential between now and later.

It makes me wonder why doesn't US government take my money and give me my money back with interest, but only after 10 years instead of paying interest every 6 months? Similar to EE bonds but larger scale.

"Upper limit" for me is based partly on a desire to diversify my holdings. For fixed income, I've set up sort of a MYGA ladder that reaches out ten yeras, enjoying some of the high interest rates of late. But that comes with having funds locked in for extensive periods of time, unable to withdraw (beyond meager amounts) without penalty. Plus still a little uncertainty/hesitancy about these "archaic" plans. (Oh, the paperwork!)

The potential draw of the FPRA for me, personally, is as a partial substitute for my oversized position in VBTLX. If I can defer the increasing income generated from the dividends in a similar investment (albeit at higher cost, especially that .25%), it might be worth it for me in terms of tax management. And the ability to choose when I want to pull funds without penalty.

[EvelynTroy]

Related to the Atlantic Coast/Sentinel financial problems thought I would share my experience today - in particular for BluePrint Income clients who hold either of these firm's annuities.
Like others I was shocked to hear of these problems - frankly after reading the other thread (Annuity Concerns with Bermuda...) I was overwhelmed and became anxious -
My Atlantic account is a 5 year MYGA @ 2.75% that terminates 12/15/2025. If I surrendered my policy it would cost about $2,600 - so not too bad. Back almost 5 yrs. ago that was a great interest rate - things change.

I decided to phone BluePrint Income they sold me the MYGA - I knew they couldn't give me direct recommendation to surrender or wait until December. But thought perhaps they could explain and provide options to think about. I tip my cap and thank BluePrint - IMO they represent customer service at its best. No wait time. Neil was in absolutely no rush to move on to the next caller - patiently explained the situation with both of these companies and what would happen if in my case Atlantic went into receivership.
In summary - he detailed what Stinky and others had explained about the overall situation. Neil noted they have been in touch with Atlantic and he felt the firm is taking positive steps to move money out of the bad offshore outfit, and they have raised additional capital. Atlantic advised they absolutely on good financial grounds and are actively working to rectify the problems. Neil thought that was a good sign, but bottom line they mis-managed folks money.

The direction he provided for me was:
Do you need the money in the near term (within the next year or so)? For me NO.
As has been noted - two options wait until December 2025 and terminate, or terminate now.
Neil noted few clients had terminated recently and it took around two weeks to get their funds.
I'm going to wait - worse case scenario Atlantic goes into receivership I will still get my funds plus interest albeit it can be lengthy couple of years process.

BluePrint is happy to talk with their clients - I found it reassuring. Each is different though.

Good Luck. Evelyn

PS - Hope this was the right discussion to post the above. Maybe I should have posted in the Annuity Concerns with Bermuda.... one - Apologize if I created confusion. WOOPS. Editing again, now I see this is really all old news. I haven't visited bogleheads in awhile. Sorry.

Evelyn,

Thanks so much for posting your experience here. It adds another valuable data point to what we know about the situation with Atlantic Coast (and likely with Sentinel Security also).

I've been posting based on news articles that I find, and also based on what I'm seeing as the Colorado Bankers situation moves toward finalization. But what I don't have is any first-person knowledge as to what's going on, and you filled that in with your discussion with Blueprint. I'm glad that Neil was informative and gave you some good input.

I'm also glad to hear that Atlantic Coast seems to be (currently) processing surrenders in a (reasonably) timely fashion. Two weeks seems to be a little long, but just about par for the course.

Thanks again for providing a very useful update for those who are following this thread.

Wayne aka Stinky

EDITED TO ADD - For what it's worth, I'm in a generally similar situation with Sentinel/Atlantic as was reported by Helen. So I also found the update to be personally useful to me.

Very welcome Wayne - fwiw, I'll add I mentioned to Neil that I got the Sentinel/Atlantic financial problems from Bogleheads - said, they were all big fans of Bogleheads and spoke highly of you Wayne. Also said it was fine that I posted a summary of our conversation. It was nice conversation - and reassuring that I wasn't just blow-off and hurriedly dismissed off the phone.

Thanks again for your updates - even though I'm way late to the news and discussion. We'll see how it shakes out.
Evelyn

[LookinAround]

This has all been very useful. Thanks for taking a closer look and clarifying the protections provided by the Illinois GA. I’ll definitely call on Monday to double-check their guarantee. For discussion purposes, assume they offer a $250K annuity guarantee for policies bought from different insurers. In such a case, I’m inclined to begin by getting 3 $200K 5-year MYGAs, each from different insurers. Or maybe build a ladder that doesn't go out further than 5 years.

Does the choice become as simple as choosing candidates based on the best rates from companies rated A- or better then further filtering the candidates by checking which ones offer RMD withdrawals that meet my needs?

Both Stan the Annuity Man and Annuity Advantage offer 3 products that meet my criteria. Blueprint only has 2. Do you consider it a toss-up choosing between Stan the Annuity Man and AnnuityAdvantage or do you have any preference between the two? Again, thanks for all the answers to my questions, as they make my buying decision simpler and make me more confident in my choices.

I think choosing the highest rates from three carriers makes a lot of sense. Many products offer a 10% annual free partial withdrawal, but you’ll need to confirm information on each product.

I have purchased from both Blueprint Income and Annuity Advantage, and I would recommend both firms. I haven’t bought from Stan, but others on the Forum have and reported positive experiences. I don’t think you can go wrong with any of the three.

I think that your plan sounds just fine.

I’m glad that my comments have been helpful. Let us know what you ultimately decide to do.

Follow-up and question:

I split my investment across three 5-year MYGAs, each with a different insurer, to stay within my state’s guarantee. I used Stan the Annuity Man. I’ve been pleased with Stan’s agents:

• One shepherded me through each Application process and submission. They also verified insurer acknowledged receipt.
• The other stayed on top of the “Application acceptance” process. They made sure all insurer questions were followed up and answered. They also follow the money between funds withdrawn from my Vanguard tIRA, and the insurer's acknowledgment of receipt.

The process went well until now: we are waiting for the money transfer between trustees to complete. Vanguard indicates the first money transfer was for $200,000 on 12/27/24. As of last Friday, 1/10/25, Axonic, the insurer,” still hasn’t received it.
I called Vanguard

Vanguard said they issued a check on 12/27, and it’s still outstanding. (I’m thinking: They sent $200,000 by check?? They didn’t quote any tracking info either. Could they have actually sent it via USPO standard mail??) Vanguard said to call back mid-next week. If it still hasn’t arrived, they’ll “cancel the check and send the money again using a quicker method.”

I’m wondering about others’ experience with MYGA money transfers. I was surprised (and shocked) to learn Vanguard may have sent a $200,000 check by what sounds like standard mail! Is that the default for Vanguard? I’d pay for a wire or send it via UPS or FedEx. In the meantime, I’ll wait to follow up with Vanguard next week. That includes learning how the other funds were sent. I’m sure doing this over the holidays may have slowed the process, but I’m alarmed to learn that 3 checks from Vanguard totaling $500,000 might have been sent using USPS standard mail! ARGH

[Stinky]

Follow-up and question:

I split my investment across three 5-year MYGAs, each with a different insurer, to stay within my state’s guarantee. I used Stan the Annuity Man. I’ve been pleased with Stan’s agents:

• One shepherded me through each Application process and submission. They also verified insurer acknowledged receipt.
• The other stayed on top of the “Application acceptance” process. They made sure all insurer questions were followed up and answered. They also follow the money between funds withdrawn from my Vanguard tIRA, and the insurer's acknowledgment of receipt.

The process went well until now: we are waiting for the money transfer between trustees to complete. Vanguard indicates the first money transfer was for $200,000 on 12/27/24. As of last Friday, 1/10/25, Axonic, the insurer,” still hasn’t received it.
I called Vanguard

Vanguard said they issued a check on 12/27, and it’s still outstanding. (I’m thinking: They sent $200,000 by check?? They didn’t quote any tracking info either. Could they have actually sent it via USPO standard mail??) Vanguard said to call back mid-next week. If it still hasn’t arrived, they’ll “cancel the check and send the money again using a quicker method.”

I’m wondering about others’ experience with MYGA money transfers. I was surprised (and shocked) to learn Vanguard may have sent a $200,000 check by what sounds like standard mail! Is that the default for Vanguard? I’d pay for a wire or send it via UPS or FedEx. In the meantime, I’ll wait to follow up with Vanguard next week. That includes learning how the other funds were sent. I’m sure doing this over the holidays may have slowed the process, but I’m alarmed to learn that 3 checks from Vanguard totaling $500,000 might have been sent using USPS standard mail! ARGH

I’m glad that you’ve had a good experience with Stan’s firm. While I’ve not used them myself, I listen to his podcasts and watch his videos. He sure acts like a confirmed Boglehead!

On the money transfer, I believe that Vanguard routinely sends checks via snail mail, at least for IRA transfers. You’re doing the right thing in getting hold of Vanguard - I’ve had to do that a time or two myself.

While the delay in transmitting funds is (extremely!) annoying, it’s just one of the things about purchasing MYGAs these days. I mentally reduce the quoted interest rate over the full 5 year term by 0.05% or so to compensate for the time that my funds aren’t earning interest while they’re in transit.

[birdbard]

I think choosing the highest rates from three carriers makes a lot of sense. Many products offer a 10% annual free partial withdrawal, but you’ll need to confirm information on each product.

I have purchased from both Blueprint Income and Annuity Advantage, and I would recommend both firms. I haven’t bought from Stan, but others on the Forum have and reported positive experiences. I don’t think you can go wrong with any of the three.

I think that your plan sounds just fine.

I’m glad that my comments have been helpful. Let us know what you ultimately decide to do.

Follow-up and question:

I split my investment across three 5-year MYGAs, each with a different insurer, to stay within my state’s guarantee. I used Stan the Annuity Man. I’ve been pleased with Stan’s agents:

• One shepherded me through each Application process and submission. They also verified insurer acknowledged receipt.
• The other stayed on top of the “Application acceptance” process. They made sure all insurer questions were followed up and answered. They also follow the money between funds withdrawn from my Vanguard tIRA, and the insurer's acknowledgment of receipt.

The process went well until now: we are waiting for the money transfer between trustees to complete. Vanguard indicates the first money transfer was for $200,000 on 12/27/24. As of last Friday, 1/10/25, Axonic, the insurer,” still hasn’t received it.
I called Vanguard

Vanguard said they issued a check on 12/27, and it’s still outstanding. (I’m thinking: They sent $200,000 by check?? They didn’t quote any tracking info either. Could they have actually sent it via USPO standard mail??) Vanguard said to call back mid-next week. If it still hasn’t arrived, they’ll “cancel the check and send the money again using a quicker method.”

I’m wondering about others’ experience with MYGA money transfers. I was surprised (and shocked) to learn Vanguard may have sent a $200,000 check by what sounds like standard mail! Is that the default for Vanguard? I’d pay for a wire or send it via UPS or FedEx. In the meantime, I’ll wait to follow up with Vanguard next week. That includes learning how the other funds were sent. I’m sure doing this over the holidays may have slowed the process, but I’m alarmed to learn that 3 checks from Vanguard totaling $500,000 might have been sent using USPS standard mail! ARGH

I posted my concerns on the same issue about amonth ago on this thread. It took so long - I got very worried! - I hate when my money is no where! But then I finally got a policy number from blueprint and was able to create accounts and see the money.

I think it took nearly 3 weeks.