Best Annuity for Teachers with a 403(b) (2026)
TL;DR: Teachers in WEP/GPO states (CA, TX, MA, IL, OH, others) get smaller Social Security checks if they get any at all, on top of their state pension. The pension is the dominant income source. A MYGA on the 403(b) rollover fills any income gap and adds yield over the in-plan variable annuity. Avoid the high-fee 403(b) products sold to teachers; once retired, roll out and buy retail. Survivor election on the pension is irreversible. Model it carefully.
CD vs MYGA, after tax
What $100,000 earns in 5 years: CD vs MYGA, after tax
Rates used: CD 5.00%, the top nationally available 5-year CD (Bankrate, October 14, 2026); change it to the rate you are offered. MYGA 5.95%, the best A-rated rate we track as of October 13, 2026: Delaware Life Pinnacle Plus 5-year (AM Best A-, negative outlook, 7/31/2026), $100,000 and up, effective October 6, 2026 (Delaware Life rate sheet).
| CD, interest taxed every year | $121,081 |
|---|---|
| MYGA, tax-deferred, before tax | $133,507 |
| MYGA after paying tax on all the interest at withdrawal | $126,136 |
| Tax deferral alone adds about | $674 |
| MYGA ahead of the CD, after tax | $5,055 |
Assumes 22% federal and 0% state income tax, no withdrawals, rates held for the whole term. MYGA interest is taxed as ordinary income when you withdraw it, not as capital gains. Gains taken before age 59 1/2 can owe a 10% IRS penalty, and cashing out early can cost a surrender charge. In an IRA both grow tax-deferred, so the edge there is the rate alone. Bank and credit union deposits are FDIC or NCUA insured up to the limits; a MYGA is backed by the issuing insurer's claims-paying ability and your state's guaranty association up to its limits, not the FDIC. General education, not tax, legal or financial advice.
Why your situation is different
You have a defined benefit pension as the main act, a 403(b) or 457(b) for supplementary savings, and possibly Social Security reduced by WEP and GPO depending on your state. That's an unusual income stack.
WEP (Windfall Elimination Provision) reduces your own Social Security benefit if you also receive a non-SS-covered pension. GPO (Government Pension Offset) reduces any spousal or survivor SS benefit by 2/3 of your government pension.
States where teachers typically do NOT pay into Social Security and are hit by WEP/GPO: California (CalSTRS), Texas (TRS), Massachusetts (MTRS), Illinois (TRS), Ohio (STRS), Louisiana (TRSL), Kentucky (TRS), parts of others.
States where teachers DO pay into Social Security: New York, New Jersey, Pennsylvania, Florida, Virginia, North Carolina, most others. These teachers get full SS plus pension, no WEP/GPO hit.
The 403(b) trap: who's actually getting paid here
Most school district 403(b) menus are dominated by insurance company variable annuities sold by local agents who literally walk the teacher's lounge. The wrapper fees on these contracts often run 1.5% to 2.5% per year, with 7-12 year surrender charges. Total cost over a career: roughly 30-50% of accumulated balance vaporized in fees.
403bWise and similar advocacy resources have documented this for two decades. The product menu often has 30-50 vendor options but only 2-3 are actually low-cost (Vanguard, Fidelity, sometimes Aspire). Choose those.
At retirement, roll the entire 403(b) to an IRA. This eliminates the wrapper fee. From there, decide MYGA / SPIA / index funds based on your income needs.
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Your pension election: irreversible, model it twice
State teacher pensions typically offer 4-7 election options at retirement: maximum (single life), joint and 100% survivor, joint and 75%, joint and 50%, period certain (10/15/20), etc. The election is permanent in most states.
The math depends on:
- Your health and your spouse's health
- Age difference between you and your spouse
- Your spouse's own pension or SS (GPO reduction applies)
- Whether your state allows a "pop-up" option (your pension reverts to single life if spouse predeceases)
If GPO will zero out your spouse's SS spousal/survivor benefit, the pension survivor election becomes essential. If your spouse has their own large pension or substantial SS, you may be able to take maximum-single-life and use the extra cash flow to buy term life or a SPIA-funded structure instead.
MYGA carriers for teacher 403(b) rollovers in 2026
- Athene: AM Best A+. Top of the shelf most months on 5-10 year MYGAs.
- Corebridge (American General): AM Best A. Strong 5 year and 7 year rates.
- Sentinel Security Life: no longer recommended. AM Best cut Sentinel Security Life to C+ (Marginal) from B on September 22, 2026, and kept the rating under review with negative implications (AM Best press release, 9/22/2026). An earlier version of this page listed it as A-, which was wrong.
Common mistakes teachers make
- Staying in a 1.8% wrapper variable annuity for 30 years. Roll out at retirement, ideally sooner if your plan allows a 90-24 transfer to a low-cost vendor.
- Buying term life or SBP-replacement structures without modeling GPO. If your spouse can't collect SS spousal because of GPO anyway, you need different replacement math.
- Taking maximum-single-life pension because the monthly is bigger. The math has to clear the spouse-survives scenario, not just current income.
- Buying a 'TSA' (tax-sheltered annuity) inside the 403(b) instead of contributing to an outside Roth IRA. The Roth IRA generally beats the 403(b) TSA for teachers in moderate brackets unless the employer match is substantial.
- Forgetting to claim a SS benefit you're entitled to from years of summer or pre-teaching work. Even with WEP, you may have a small SS benefit. File for it. Don't leave free money on the table.
Worked example: $320,000 403(b) rollover, age 60, California teacher
Maria, 60, 30 years CalSTRS. Pension election: 100% joint-survivor reduces her to $58,000/year. Husband age 62, claimed his SS already at $24K/year. CalSTRS doesn't pay into SS, so Maria's small SS from her 5 years of pre-teaching restaurant work is WEP-reduced to $400/month. 403(b) balance: $320K (in a Lincoln variable annuity at 1.7% wrapper fee).
| Bucket | Vehicle | Amount | Purpose |
|---|---|---|---|
| 1. Liquidity | HYSA | $25,000 | 4.5% yield |
| 2. 5 yr MYGA, Carrier A | Trad IRA (rolled from 403b) | $100,000 | 5.75% locked to 65 |
| 3. 7 yr MYGA, Carrier B | Trad IRA | $100,000 | 5.90% locked to 67 |
| 4. Growth bucket | Trad IRA, index funds | $95,000 | 20-year horizon |
Rolling out of the Lincoln variable annuity eliminates the 1.7% wrapper drag. That's $5,440/year of savings on $320K alone. Over 20 years that's roughly $108,000 of lost compounding recovered.
Pension $58K + Maria SS $4.8K + husband SS $24K = $86.8K. MYGA interest year 1: ~$11.7K (deferred, not income). Comfortable on cash flow; the MYGA stack is for protected growth and future income optionality.
Related reading
- Best annuity for hospital nurses (403b / 457)
- Best annuity for federal employees rolling TSP
- How much does a $100K annuity pay per month?
- What happens to an annuity when the spouse dies?
- Non-qualified annuity tax explained
Frequently Asked Questions
Can I keep the 403(b) at the school district after retirement?
Usually yes, but the wrapper fees keep eating you. Rolling to an IRA is almost always the better move once you're no longer contributing.
Does WEP go away in 2024 or 2025?
Congress passed legislation in late 2024 (Social Security Fairness Act) that eliminated WEP and GPO for teachers and other public-sector workers, effective for benefits payable after December 2023. Always verify with SSA for your specific situation; eligibility rules and benefit recalculations are still being processed by SSA into 2026.
What's a 403(b) versus a 403(b)(7)?
403(b) traditionally meant insurance-company annuity products. 403(b)(7) is the mutual-fund custodial-account version (Vanguard, Fidelity). Most modern teacher plans allow both; 403(b)(7) is generally lower cost.
Can I use a 1035 exchange to swap my variable annuity 403(b) for a MYGA?
Not directly inside a 403(b) plan. You need a plan-to-plan transfer (90-24) or a retirement-triggered rollover to an IRA, then buy the MYGA inside the IRA.
Are teacher pensions taxable?
Yes, federally. State tax varies. Some states fully exempt their own pension (e.g., Illinois), others tax it fully.
Should I buy a SPIA to bridge the gap to age 65 for Medicare?
Only if you have a clear income gap and prefer the certainty. Often a MYGA with 10%/yr free withdrawal or an IRA bucket is more flexible. SPIA is ideal for permanent lifetime income, not 3-5 year bridges.
How does my pension survivor election interact with a SPIA?
They stack. The pension provides one income stream to your spouse; the SPIA can provide a second. Choose pension survivor benefit based on the gap your spouse would face, not the headline pension number.
Can I roll a 457(b) plus a 403(b) into the same IRA?
Yes for governmental 457(b) plus 403(b). Both can roll into the same traditional IRA. Non-governmental 457(b) has its own restrictions.
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Disclosure
This article reflects publicly available product materials and approximate rates as of the date stated above. Annuity rates, caps, participation rates, payout factors, crediting methods, and tax rules change frequently. Confirm current figures in the latest carrier disclosure and the contract before you buy. This article is general information for educational purposes; it is not a personalized recommendation, solicitation, or offer of any specific product, nor is it tax or legal advice. Hans Goldstein is an independent licensed insurance producer (NPN 20602398) appointed with multiple A-rated carriers across the annuity and long-term care insurance market; specific appointment status with any carrier discussed may vary, and discussion of a carrier is not an endorsement or representation of carrier appointment. No compensation has been received from any carrier in connection with the publication of this article. Always read the actual contract and consult a licensed advisor and a CPA or tax attorney before purchasing any annuity or making rollover decisions. Annuities are long-term contracts with surrender charges; they are not suitable for funds you may need before the end of the surrender period. AM Best ratings, payout factors, and tax treatment are subject to change. References to the TSP, FERS, CSRS, OPM, USPS, Social Security, IRMAA, WEP/GPO, IRC §72, §453, and §1035 reflect rules as of 2026 and are subject to change.