MMF vs MYGA (2026), Tax Deferral & Rate Lock vs Variable Cash
Quick take: Major money market funds yielded 3.45-3.76% in late September 2026, variable, taxed every year, no lock. A-rated 5-year multi-year guaranteed annuities (MYGAs) topped out around 5.50-6.05% on October 14, 2026 (public carrier rate sheets), locked, tax-deferred. For money you won't need for 3+ years, the MYGA wins on math by tens of thousands of dollars on a $250K balance. This page shows the work.
| Product | Yield | Source, as of |
|---|---|---|
| Vanguard Federal MMF (VMFXX) 7-day | 3.74% | vanguard.com, 09/23/2026 |
| Vanguard Treasury MMF (VUSXX) | 3.76% | vanguard.com, 09/24/2026 |
| Schwab Prime Advantage (SWVXX) | 3.70% | schwabassetmanagement.com, 09/25/2026 |
| Schwab Government (SNVXX) | 3.57% | schwabassetmanagement.com, 09/25/2026 |
| Fidelity Government MMF (SPAXX) | 3.46% | fidelity.com, 09/24/2026 |
| A-rated 5-year MYGA (benchmark) | 5.50-6.05% | public carrier rate sheets, 10/14/2026 |
| Top 5-year CDs (national) | 4.35-4.50% APY | DepositAccounts, 09/25/2026 |
The worked example holds VMFXX at its 09/23/2026 yield for all five years and uses 5.50%, the low end of the A-rated 5-year MYGA range.
Money market fund vs MYGA, after tax
What $100,000 earns in 5 years: money market fund vs MYGA, after tax
Rates used: Money market fund 3.76%, the highest 7-day yield we tracked (VUSXX, fund sites, September 23, 2026); yields change daily; 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).
| Money market fund, interest taxed every year | $115,550 |
|---|---|
| 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 money market fund, after tax | $10,586 |
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. 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.
Side-by-side, MMF vs MYGA
| Feature | Money Market Fund | Multi-Year Guaranteed Annuity (MYGA) |
|---|---|---|
| Yield (checked Sept 23-25, 2026) | 3.45-3.76% (7-day, major funds) | 5.50-6.05% (5-year, A-rated) |
| Rate locked? | No, resets within weeks of Fed moves | Yes, locked for the full term |
| Term | None (open-ended) | 3, 5, 7, or 10 years (typical) |
| Federal tax treatment | Ordinary income, taxed yearly on 1099-DIV | Tax-deferred until withdrawal |
| State tax treatment | Treasury MMF: substantially exempt; Govt/Prime: fully taxable | Fully state-taxable on withdrawal |
| Liquidity | Full daily liquidity | 10% per year penalty-free; surrender charges on amounts above |
| Insurance | None (SEC 2a-7 regulated) | State guaranty fund (typically $250-300K limit per carrier) |
| Pre-59½ withdrawal penalty | None | 10% IRS penalty on gain (not principal) before age 59½ |
| Reinvestment risk | High, yield can drop dramatically with Fed cuts | None, locked at issue |
Rates expire like milk.
The best MYGA, CD and savings rates change every few weeks. Get a short email when a rate on this page changes.
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The big math, $250,000 over 5 years
This is the comparison Hans runs for every cash-heavy retiree who walks in the door. Assumptions:
- $250,000 starting balance, taxable account
- 5-year horizon
- Buyer: age 62, retired, 24% federal bracket + 9.3% CA state
- MMF: VMFXX at its 3.74% 7-day yield (09/23/2026), held constant for all five years (no rate forecast); after-tax growth at a 33.3% combined rate
- MYGA: A-rated 5-year MYGA at 5.50% locked (low end of the 5.50-6.05% public carrier rate sheets range, 10/14/2026)
| Year | MMF yield (held constant) | MMF balance (after tax) | MYGA yield (locked) | MYGA balance (deferred) |
|---|---|---|---|---|
| 0 | n/a | $250,000 | n/a | $250,000 |
| 1 | 3.74% | $256,236 | 5.50% | $260,700 |
| 2 | 3.74% | $262,628 | 5.50% | $279,841 |
| 3 | 3.74% | $269,180 | 5.50% | $293,560 |
| 4 | 3.74% | $275,895 | 5.50% | $313,244 |
| 5 | 3.74% | $282,777 | 5.50% | $326,740 |
Result at 5 years:
- MMF (post-tax, yield held at 3.74%): $282,777
- MYGA (deferred, locked rate): $326,740
- MYGA advantage at year 5: +$43,963
The MYGA also still has tax to pay when withdrawn. If the buyer withdraws the full balance at year 5 and pays ordinary federal + state tax on the $76,740 of gain at 33.3% combined, the after-tax MYGA balance is $301,186, still +$21,525 over the MMF, with a guarantee that the MMF never had.
And the buyer might never take a lump-sum withdrawal, the MYGA can roll into a new MYGA at maturity (continuing the tax deferral), or annuitize for guaranteed lifetime income (favorable exclusion-ratio taxation), or pass to heirs (stepped-up basis does not apply, but the deferral has been working for the buyer for the full term).
Where the MMF wins (the small set of cases)
- You might need the money within 3 years. MYGA surrender charges in the early years are real (typically 8/8/7/6/5/4/3/2/1/0%). Don't lock money you'll touch.
- You're under 59½. MYGA gains withdrawn pre-59½ carry a 10% IRS penalty on top of ordinary income tax. The penalty applies only to gain, not principal, but it's a real cost.
- You're in the 10-12% federal bracket. The tax-deferral benefit shrinks dramatically. If you'll owe little tax either way, the MMF's liquidity may be worth more than the MYGA's deferral.
- The MYGA carrier rating is below A-. Stick with A or A+ carriers (Athene, Corebridge, MassMutual Ascend, Symetra, etc.) and you eliminate carrier risk for practical purposes.
Where the MYGA wins (the large set of cases)
- You're 59½+ with 3-7 year money. The single most common case. Math is decisive.
- You're a high earner with cash drag. The annual MMF tax drag of 30-40% of the yield (federal + state) is real money. MYGA defers it.
- Short rates fall. Locking protects you if the Fed cuts. The Fed raised its target to 3.75-4.00% on September 16, 2026, so the direction from here is not known, but the MYGA already out-yields the MMF even if short rates hold.
- You want a guaranteed lifetime income option at maturity. MYGA can annuitize for lifetime income at then-current SPIA rates. MMF cannot.
Common objections, honest answers
"My money is locked up."
10% annual penalty-free withdrawals during the term, in most contracts. On a $250K MYGA, that's $25K/year you can pull without any surrender charge. Most retirees don't actually need more than that.
"Annuities are complex."
MYGAs are not. They're literally a fixed rate for a fixed term, the simplest product in the annuity menu. Complexity (income riders, indexed crediting, MVAs, recapture schedules) lives in FIAs and IUL, not in vanilla MYGAs. See the Goldstein Complexity Index: MYGAs typically score 5-15 of 100 (Grade A+).
"Annuities have high commissions."
MYGA commissions are paid by the carrier from spread, not deducted from your premium. A 1-3% commission on a 5-year MYGA spread across 5 years is 20-60 bps/year, less than most MMF expense ratios.
"What if the carrier fails?"
State guaranty funds cover MYGAs to $250-300K per owner per carrier (varies by state). Split larger purchases across two A-rated carriers and you have full coverage on each half. The annuity industry's actual failure rate over the past 30 years is near zero for A-rated carriers.
More Money Market Fund research
- Best Money Market Funds 2026 (ranked)
- MMF vs MYGA, when each wins
- MMF vs HYSA, yield spread and risk
- MMF vs CD, liquidity vs lock
- Breaking the buck, 1994 & 2008 cases
- How MMF yields track the Fed funds rate
- High-Yield Savings reviews
- Best MYGA rates 2026
FAQ
Q: Is the MMF yield in your math too pessimistic?
A: No. The table holds VMFXX at its 3.74% 7-day yield of 09/23/2026 for all five years, no forecast of Fed cuts. If short rates fall, the gap widens in the MYGA’s favor; if they rise, it narrows.
Q: What if rates go higher instead?
A: Then the MMF closes the gap but typically doesn't catch the MYGA. The MYGA also has a market-value-adjustment (MVA) feature on most contracts that adjusts surrender value if rates rise, protecting the carrier, but holding to maturity is unaffected. If you're convinced rates are going higher and staying higher, a 3-year MYGA is the answer (shorter lock, can reinvest at higher rate at maturity).
Q: How do I compare MYGA carriers?
A: AM Best rating (A- minimum, A or A+ preferred), COMDEX score (composite, 80+ preferred), renewal-rate integrity if you might roll at maturity, and the actual locked rate. See current top rates →
Q: Are MYGA premiums tax-deductible?
A: No, not in a taxable account. MYGA tax benefit is deferral on growth, not deductibility on contribution. (Inside an IRA, the IRA wrapper already provides deferral; the MYGA inside an IRA gives you the rate guarantee without an additional tax benefit.)
Q: What about a CD instead of a MYGA?
A: Top 5-year CDs were 4.35-4.50% APY on 09/25/2026 (DepositAccounts). A-rated 5-year MYGAs at 5.50-6.05% (public carrier rate sheets, 10/14/2026) paid roughly 130-165 bps more on a locked rate, with tax deferral on top. CDs have FDIC; MYGAs have state guaranty funds. For 5-year money, A-rated MYGAs usually win the math.
About Hans Goldstein: Independent retirement income specialist. CA Life License #4273294. NPN #20602398. Reviews 30+ carriers and the full menu of cash alternatives. Phone: 213-414-2808. Email: hans@hansgoldstein.com.
Hans is independently licensed as an insurance producer; he does not sell money market funds or other securities. These reviews are based on publicly available fund prospectuses, fact sheets, SEC filings, and SEC-yield reporting requirements.
📩 Comparing MMF yield to a locked rate? Get a 5-min independent read.
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Money market funds are great for short-term cash. For money you don't need for 3+ years, a multi-year guaranteed annuity (MYGA) typically pays 100-150 bps more and defers tax. Get an independent side-by-side before you let cash drift in a MMF for 5 years.
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📞 Hans Goldstein · 213-414-2808 · NPN 20602398, independent licensed insurance producer appointed with multiple A-rated carriers
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Disclosure
This review reflects publicly available fund prospectuses, fact sheets, and approximate 7-day SEC yields as of the date stated above. Money market fund yields change daily and reset roughly in line with the federal funds rate; always confirm current yield, expense ratio, holdings, and weighted average maturity against the most recent fund disclosure document before committing capital. Money market funds are not FDIC-insured. Government and Treasury money market funds historically maintain a stable $1.00 NAV but are not guaranteed to do so, see "breaking the buck" history. Prime money market funds may impose liquidity fees or redemption gates during market stress. This is general education, not a personal recommendation or an offer of any product. Hans Goldstein is an independent licensed insurance producer (NPN 20602398) and does not sell securities or money market funds; comparisons to multi-year guaranteed annuities (MYGAs) are provided for informational context only. No compensation has been received from any fund company in connection with the publication of this review. Always read the actual fund prospectus and consult a licensed advisor before investing. Past yield does not predict future yield. State income tax treatment of U.S. Treasury obligations varies and is subject to change. Tax discussion reflects federal and California law as of 2026 and is subject to change.