I consider myself a reasonably proficient investor but annuities are new to me.

For my short-term cash needs, I've been CD laddering.

As I look to invest for 2026 maturity (5 year), CDs are returning max 1% while "multi-year guaranteed annuities" (MYGA) are hovering around 3%.

The annuity bumpf compares MYGAs to CDs but the fineprint includes "The IRS issues a 10% penalty on gains withdrawn from a fixed annuity for account holders under age 59½.".

I'm 53.

An I correct in understanding that, at maturity, I can withdraw the original investment amount and pay income tax but with the extra 10% penalty on the gain?

By my math, I'd still be ahead:

  • Annuity $$$+(1.03^5 less income tax + 10%)
  • CD $$$+(1.01^5 less income tax)

Am I missing anything else?

  • 1
    All you need to know about annuities is that they are bad news, as are most "complex investment products". They are simply better investments wrapped in a bunch of complexity and internal fees, which make sure the bank harvests most of the profit from those underlying investments instead of you. A well-informed investor is surely aware of John Bogle's view, which is the most reliable investment on earth is avoiding a fee. Heck, 10% is nearly the long term capital gains tax! And you should be paying LTCG not standard income tax. Jan 2 at 21:05

1 Answer 1


If you take money out of your annuity before age 59½, you pay the penalty. I don't know anything about MYGAs so I don't know anything about the applicability of the following:

From Ameriprise:

Annuity withdrawals made before you reach age 59½ are typically subject to a 10% early withdrawal penalty tax. For early withdrawals from a qualified annuity, the entire distribution amount may be subject to the penalty. If you withdraw money early from a non-qualified annuity, typically only earnings and interest will be subject to the penalty.

(A non-qualified annuity is paid for with after-tax money)

I'd add that some insurance companies have a general cash account and you can leave the money in it for the additional time needed to reach age 59½.

  • Wow! This is even worse than I thought "the entire distribution amount". Though I would be using after-tax money, the "typically" concerns me. Thank you!
    – DazWilkin
    Jan 2 at 14:48
  • Bear in mind that I said that I don't know about applicability. Find out whether the MYGA is or isn't qualified. Jan 2 at 14:51
  • Yes, understood. Thank you. My contribution would definitely be after-tax so I assume the IRS can't tax me twice on the invested amount. But I'll certainly read up more on these.
    – DazWilkin
    Jan 2 at 16:53

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