Understanding MYGA, FIA, and Annuity Taxes: A Simple Guide for Tora Wealth Clients
At Tora Wealth, we know annuities can feel overwhelming. Terms like MYGA, FIA, and "income rider" can sound complicated, but they don't have to be. Here's a straightforward guide to help you understand how these annuities work—and what you need to know about the taxes involved.
What is a MYGA?
MYGA stands for Multi-Year Guaranteed Annuity.
Think of it like a CD (certificate of deposit), but from an insurance company.
You invest a lump sum.
You get a guaranteed fixed interest rate for a set number of years (like 3, 5, or 7).
At the end of the term, you walk away with your money plus the guaranteed interest.
Example: You invest $100,000 in a 5-year MYGA at 5% interest. In 5 years, you'll have about $127,628—guaranteed.
What is a FIA?
FIA stands for Fixed Indexed Annuity.
It gives you a mix of safety and growth:
Your money is protected. You won't lose money if the market drops.
Your growth is linked to a stock market index like the S&P 500.
When the market goes up, you earn a portion of the gains (capped or with a participation rate). When the market goes down, you don't lose—you just earn 0% that year.
Example: If the S&P 500 grows 10%, your annuity might credit 6%. If the market drops 20%, you earn 0% but don't lose any money.
What is a Guaranteed Income Rider?
This is an optional add-on to an annuity that gives you guaranteed lifetime income.
Think of it like creating your own pension:
You pay extra for this feature.
In return, the insurance company gives you monthly income for life.
Even if your account runs out, your paychecks continue.
It’s great for people who want retirement income they can never outlive.
Can Foreign Nationals Purchase Annuities?
Yes, many insurance companies allow foreign nationals to purchase both MYGA and FIA annuities.
You typically need a valid passport and a U.S. bank account.
Residency in the U.S. is not always required, but some companies may ask for additional documentation.
This makes annuities a useful tool for non-U.S. residents seeking safe, tax-deferred U.S. dollar growth.
Is a Medical Exam Required?
For MYGAs and FIAs, a medical exam is usually NOT required.
These products are considered more like savings tools than life insurance.
Approval is often based on age, residency, and financial suitability—not health.
How Fast Is the Timeline?
Annuities can be issued fairly quickly:
MYGAs: Often approved and funded within 1 to 2 weeks.
FIAs with income riders: May take a bit longer if additional verification is needed, but generally within 2 to 3 weeks.
Timelines may vary based on paperwork, funding method, and provider.
Do You Pay Taxes on Annuities?
Yes—but only when you take money out.
Here's how it works:
1. You only pay taxes on the gains.
If you invested $100,000 and it grows to $120,000, you only pay taxes on the $20,000 profit.
2. You don’t pay taxes while the money stays inside.
It grows tax-deferred. You only pay when you start withdrawing.
3. The growth is taxed as ordinary income.
This means it’s taxed at your regular income tax rate, not capital gains rates.
4. Early withdrawals may trigger penalties.
If you take money out before age 59½, there could be a 10% IRS penalty, unless it's inside an IRA.
Final Thoughts
Annuities can be a smart piece of your wealth plan—especially if you want safety, growth, and lifetime income. But understanding how they work (and how they're taxed) is key to making the right decision.
Whether you're a U.S. citizen or a foreign national, Tora Wealth can help you explore the right annuity options—no medical exam, fast timelines, and solid tax-deferred growth.
Need help choosing the right annuity for your goals? Contact us at Tora Wealth and let’s explore the best options together.
