Do Fixed-Rate Annuities Have Liquidity? MYGA Withdrawal Rules

Written by Hersh Stern Updated September 15, 2025

Yes — most Multi-Year Guarantee Annuities (MYGAs) offer limited liquidity, but withdrawals are usually capped and exceeding your allowances may trigger surrender penalties or a Market Value Adjustment. Before you buy, it’s important to understand exactly how and when you can access your money.

MYGA Annuity Withdrawals Explained

Before you buy any annuity, it’s crucial to understand what access you will have to your annuity’s cash value. Some annuities allow for limited penalty-free withdrawals, others only allow for emergency withdrawals, and others don’t allow for withdrawals at all.

Even if you are considering buying a Multi-Year Guarantee Annuity (MYGA) just to grow your money for the entire term without taking any money out, it is worth taking the time to understand your annuity’s withdrawal provisions. This way you know what flexibility you have with your annuity, especially in the case of any unexpected expenses.

Common withdrawal provisions in MYGAs are:

• 10% withdrawals — allow you to take up to 10% of your annuity’s value each year
• Interest only withdrawals — allow you to only take the interest your annuity has accrued
• Nursing home or terminal illness riders — allow you to remove funds from your annuity if you are confined in a nursing home or are diagnosed with a terminal illness

Where can you find an annuity’s withdrawal provisions?

When you are shopping for an annuity, you can look at the product brochure for information on your withdrawal options. This normally has the withdrawal options in clear, simple language.

You can also request a sample contract which will give you an example of the exact legal language that your MYGA contract would contain pertaining to your right to withdraw money.

And finally, you can ask one of our annuity experts to help you understand your withdrawal options.

Key places to look for withdrawal provisions:

• Annuity brochure — offers plain language explanations of annuity withdrawals
• Sample contract — a boilerplate contract that shows you the legal language of the annuity
• Trusted annuity experts — sometimes the easiest way is to just ask a trusted expert

Do insurers charge penalties for making withdrawals?

There could be. That’s why it’s so important to understand your withdrawal options before you buy your annuity. Some insurers may charge you Surrender Penalties and impose a Market Value Adjustment if you have to withdraw money early from your annuity.

The good news is that there are a lot of insurers who do allow for withdrawals from fixed-rate annuities. However, some insurers may make you purchase a specific “rider”, or addendum, to your annuity contract to make withdrawals. This purchase is normally paid for as an interest rate reduction to your MYGA’s interest rate. So, if you plan to buy withdrawal riders, it’s a good idea to make sure you are still getting the best deal after you factor in your rider fees.

IRS Withdrawal Penalties

If you take withdrawals from your MYGA prior to 59 ½, the IRS may impose a 10% penalty, but only on the taxable portion of your withdrawal. What is taxable depends on whether your annuity is qualified or non-qualified.

Qualified Accounts (e.g. IRA annuities)

A qualified annuity is funded with pre-tax dollars, so your entire withdrawal from a qualified MYGA is taxable as ordinary income. If you take a withdrawal from your qualified MYGA contract before 59 ½, you will receive an early withdrawal penalty in addition to regular taxes.

You can avoid this 10% penalty and triggering taxes by using a direct trustee-to-trustee transfer or rollover to send your withdrawal to another qualified account, such as a Traditional IRA. These types of transactions are not treated as withdrawals.

Non-Qualified Accounts

If your annuity is non-qualified that means it was funded with money that has already been taxed. Because your annuity grows tax-deferred, any withdrawals you take prior to 59 ½ are subject to the 10% early withdrawal penalty in addition to regular income tax.

By IRS rules, withdrawals are considered to come from earnings first (Last-In, First-Out or LIFO). This means your withdrawal will likely be interest that is not only taxable as ordinary income, but also penalized at 10% by the IRS. The penalty, however, is only applied to interest earnings for non-qualified annuities and will not be applied to the original premium payment you made into the annuity.

Important Note:

If you are over the age of 59 ½, you do not need to worry about early withdrawal penalties. However, your withdrawals will still be taxable as ordinary income for most situations.

Key Rules to Watch for in Withdrawal Provisions

While most annuity withdrawals are fairly straightforward, it is also important to know when these options become available to you. For instance, some insurers will allow you to withdraw money in the first contract year, while others will require that you wait until the second contract year to make any withdrawals.

Additionally, understanding the terms of Nursing Home and Terminal Illness riders is crucial if you anticipate needing to exercise these riders. Some insurers may require you to be confined to a nursing home for a certain period of time before making any withdrawals or have a medical prognosis that places your life expectancy within a certain time frame.

How to make sure you understand your annuity’s withdrawal allowances

In order to not be caught off-guard, you should read the product brochure of the annuity before you purchase it. It’s a good idea to request a sample contract as well. If any of this is unclear, ask our annuity experts for help.

Once you’ve purchased your annuity, make sure you read the annuity contract carefully when you receive it to ensure you understand and accept the withdrawal provisions you are agreeing to. You should do this as soon as possible after you get your contract so that you can “free look” or cancel your contract if you wish. Most states require a “free-look” period during which you can cancel your annuity contract for a full refund.

Taking a little time up-front can save you a big headache later on. Ensuring you understand what is and isn’t allowed in the annuity you are considering is key to making your annuity a part of your retirement portfolio that works for you and gives you exactly what you need. As always, call our U.S.-based annuity experts at 866-866-1999 if you have any questions at all.

References:

• “Publication 575: Pension and Annuity Income” Internal Revenue Service, 2024 www.irs.gov/pub/irs-pdf/p575.pdf
• “Publication 939: General Rule for Pensions and Annuities” Internal Revenue Service, December 2024 www.irs.gov/pub/irs-pdf/p939.pdf