Should I Take Out a MYGA Loan? — The Honest Loan-vs-Surrender Comparison
First — do MYGAs even allow loans?
Quick clarification because there's a lot of confusion: most MYGA contracts do NOT permit policy loans. That's a feature of permanent life insurance (whole life, universal life), not multi-year guaranteed annuities.
The handful of carriers that do offer loans against MYGA cash value as of mid-2026:
- Athene (selected MYGA products, post-surrender period)
- Sammons / Midland National (some products)
- Symetra (specific products)
- Pacific Life (older variable annuity products with MYGA-equivalent features)
Even among these carriers, the loan feature is typically:
- Available only after the multi-year guarantee period ends (so 5-10 years into the contract)
- Capped at 50-80% of cash value
- Charged at 6-8% loan rate (paid to the carrier as the cost of borrowing your own money)
- The credited rate continues on the full cash value (unlike whole life, where unborrowed value continues to earn full rate and borrowed value earns reduced rate)
If your MYGA doesn't allow loans (most don't): your options are the free-withdrawal provision, surrender, or alternative borrowing outside the contract.
If the loan IS available — the math
Scenario: $250K MYGA at 5.6% credited rate, 3 years into a 5-year guarantee period. You need $40K for a home renovation. Loan feature exists at 6% loan rate.
| Item | Annual amount |
|---|---|
| Credit on full $250K cash value at 5.60% | +$14,000 |
| Loan interest charged on $40K loan at 6.0% | -$2,400 |
| Net spread on borrowed amount | -40 bps net cost |
| Effective cost of loan | ~0.40% per year of the borrowed amount |
The carrier earns 40 bps on the spread (loan rate minus credited rate). For the policyholder, the effective borrowing cost is roughly 40 bps — far cheaper than any alternative.
Tax treatment of MYGA loans:
- Generally not a taxable event (loans aren't income)
- If the contract is classified as a Modified Endowment Contract (MEC), loans become taxable distributions; MYGAs that took premium quickly (high-premium MYGAs) often become MECs
- If the loan is outstanding at death, the death benefit is reduced by the loan balance; reduction is treated as ordinary income to the heir
The catch: The loan rate (6-8%) significantly exceeds the credited rate (5.6%). You're paying the carrier a spread for the privilege of borrowing your own money. This isn't usury — it's the cost of the optionality. But it's not "free borrowing" either.
Alternative 1: The free-withdrawal provision (cheaper option)
Almost every MYGA contract allows 10% of the cash value to be withdrawn per year without surrender charge. Some contracts allow 5%; a few premium products allow up to 15%.
How to use it for the same $40K need:
- $250K MYGA × 10% free withdrawal = $25K available without surrender charge in any year
- Withdraw $25K in year 1; $25K more in year 2 (if needed)
- Cumulative $50K available over 2 years without surrender penalty
Tax treatment: Non-qualified MYGA withdrawals use LIFO (last-in-first-out). Interest comes out first as ordinary income; principal returns last and is tax-free. For a $250K MYGA that's grown $30K in interest, the first $30K withdrawn is fully taxable as ordinary income.
For under-59½ account holders, there's also a 10% federal early withdrawal penalty on the interest portion. This makes early withdrawals from MYGAs particularly painful before 59½.
For most situations where the loan would be considered: the free-withdrawal provision is cheaper than the loan. You give up future growth on the withdrawn amount, but you avoid the 6-8% loan interest charge.
Alternative 2: Full surrender (the nuclear option)
Surrendering the MYGA gets you the entire cash value minus any surrender charge. For a 5-year contract surrendered in year 3, typical surrender charges:
| Surrender year | Typical charge (% of cash value) |
|---|---|
| Year 1 | 8-9% |
| Year 2 | 7-8% |
| Year 3 | 5-6% |
| Year 4 | 3-4% |
| Year 5 | 1-2% |
| Year 6+ | 0% (post-surrender period) |
$250K cash value surrendered in year 3 with 5% surrender charge = $237,500 to you, minus tax on accrued interest.
This is the worst option for a $40K need. You'd liquidate $250K to access $40K, paying $12,500 in surrender charges (5% of $250K) and triggering tax on all accrued interest. Don't do this unless you need most of the balance.
Partial surrenders (taking just $40K) are typically subject to the same surrender charge rate on the amount above 10% free withdrawal. So if you take $40K from a $250K contract in year 3:
- First $25K = free withdrawal (no charge)
- Next $15K = surrender charge of 5% = $750
- Net to you: ~$39,250 minus tax on interest portion
Partial surrender is cleaner than full surrender for this size of need, but still more expensive than a HELOC or personal loan if you can qualify for those at reasonable rates.
Alternative 3: HELOC or personal loan (often cheapest)
For a home renovation specifically, a HELOC is often the cheapest borrowing path:
- HELOC rate (mid-2026): ~7.50-8.50% (variable, prime + small spread)
- Tax deduction available if used for home improvement (substantial improvement, not maintenance)
- After-tax HELOC cost in 24% federal bracket: ~5.7-6.4%
- Effective net cost (HELOC at 6% after-tax) vs MYGA giving up 5.6% growth = 0.4% net annual cost
For non-home uses, a credit union personal loan or unsecured line of credit at 7-9% might be cheaper than tapping the MYGA, depending on credit quality.
The decision matrix:
| Need | Best path | Second-best |
|---|---|---|
| Under 10% of cash value | Free withdrawal | HELOC if available |
| 10-20% of cash value | Free withdrawal year 1 + free withdrawal year 2 (spread over 2 years) | HELOC for the immediate need |
| 20-50% of cash value | HELOC or personal loan (avoid surrender) | If loan feature exists, MYGA loan |
| 50%+ of cash value | Reconsider whether the MYGA is the right vehicle long-term | If unavoidable, partial surrender accepting penalty |
The tax trap to avoid — pre-59½ rules
If you're under age 59½, MYGA withdrawals (and to some extent MYGA loans on MEC-classified contracts) face an additional 10% federal penalty on the interest portion.
Example: 55-year-old with $200K MYGA, $30K of accrued interest. Takes $40K free withdrawal:
- $30K classified as interest (taxable as ordinary income) — federal+state tax at 24% + 9.3% CA = $9,990
- $30K interest also subject to 10% federal early-withdrawal penalty = $3,000
- $10K classified as basis (tax-free)
- Net to investor: $40K - $9,990 - $3,000 = $27,010
Effective tax rate on this withdrawal: 32.5% just to access your own money. For under-59½ account holders, MYGAs should be considered functionally untouchable until the age 59½ restriction lifts. Don't deploy money into a MYGA you might need to access early.
The right way to think about MYGA "liquidity"
The MYGA isn't structured to be a liquid asset during the multi-year guarantee period. It's a yield-locked savings instrument with limited intra-term access via the free-withdrawal provision.
The right MYGA framework:
- Keep a separate liquid reserve (HYSA, VUSXX, short T-bills) for emergency and near-term needs — typically 6-12 months of expenses
- Use the MYGA for medium-horizon money you commit to leaving alone — 3 to 7 years untouched
- Plan around the 10% free withdrawal as the only intra-term access — if you might need more than 10% in any year, the MYGA isn't the right vehicle for that money
- If a MYGA loan IS available on your specific contract, use it for unplanned medium needs — it's typically cheaper than surrendering, more flexible than the free withdrawal, and tax-deferred
The honest answer for most MYGA holders considering a loan: the loan is a useful tool, but it usually isn't the cheapest option. Compare against HELOC, personal loan, and 2-year-spread free withdrawals before locking in a 6-8% loan rate.
Related reading
- 1035 exchange rules
- Best MYGA rates — 2026
- MYGA vs bank CD for emergency fund
- Jumbo CD vs MYGA
- Brokered CD vs bank CD vs MYGA
Want my independent take on whether this fits your situation?
I'm Hans Goldstein — independent licensed insurance producer (NPN 20602398), appointed with multiple A-rated carriers. I run side-by-side comparisons against CDs, MYGAs, Treasuries, and MMFs every week for retirees and pre-retirees. Tell me what you're considering and I'll send back a written comparison.
Hans Goldstein · 213-414-2808 · NPN 20602398, independent licensed insurance producer appointed with multiple A-rated carriers
By submitting, you agree to receive calls and texts from Hans Goldstein. Msg/data rates apply. Reply STOP to opt out. Privacy Policy.
Frequently Asked Questions
Disclosure
This article is general educational information, not personalized financial, tax, or legal advice. All rates, IRS limits, Social Security PIA factors, IRMAA brackets, FDIC/NCUA coverage, and state guaranty fund coverage figures are current as of the publication date and subject to change. IRMAA brackets and Roth/Traditional IRA limits cited reflect IRS guidance for 2026 and may be updated by the IRS or SSA; confirm current figures at irs.gov and ssa.gov before acting. Hans Goldstein is an independent licensed insurance producer (NPN 20602398) appointed with multiple A-rated annuity carriers; he does not sell bank CDs, money market funds, or Treasury securities and is not affiliated with any bank, brokerage, or government agency discussed. No compensation has been received from any third party in connection with this article. Bank CDs are FDIC-insured deposit products; credit union share certificates are NCUA-insured; money market funds are SEC-regulated investment products with no FDIC coverage; Treasuries are direct obligations of the U.S. government; MYGAs are insurance contracts backed by carrier balance sheets and state guaranty associations. These are different product categories with different protections, tax treatments, and trade-offs. Always confirm current rates and tax law with the issuer or a CPA before acting.