Tennessee Annuity Rates: What Retirees Need to Know in 2026

Tennessee Annuity Rates: What Retirees Need to Know in 2026

Find the best 2026 Tennessee annuity rates and MYGA options. Explore tax-friendly retirement benefits with a licensed agent.

Full written article: Tennessee Annuity Rates: What Retirees Need to Know in 2026

Tennessee Annuity Rates

Transcript

SPEAKER_01 0:03

Welcome to the Tennessee Annuity Show. I'm Jessica.

SPEAKER_00 0:06

And I'm Caleb. We break down complex annuity products in plain English, fixed annuities, indexed annuities, income annuities, all of it.

SPEAKER_01 0:13

We cover the products, the fine print, and the questions you should ask before you sign anything.

SPEAKER_00 0:18

Quick note before we start. This show is for general information only and is not financial, tax, or legal advice. Annuity guarantees depend on the issuing insurance company's ability to pay claims. Talk with a licensed professional before making decisions about your retirement income.

SPEAKER_01 0:33

All right, let's get into today's episode. So I had a conversation with my aunt last month. She's 68, just retired from teaching, lives outside Knoxville, and she's sitting on about $150,000 from a 401k rollover. And she asked me point blank, is Tennessee a good state to put money in an annuity? And honestly, Caleb, I didn't have a clean answer for her.

SPEAKER_00 1:01

That's actually a better question than most people think to ask. Most people just ask, what rate can I get? Which matters. But the state you're in shapes the whole picture.

SPEAKER_01 1:09

Aaron Powell Right. And I think that's what we want to get into today, because Tennessee specifically has some things going for it that I don't think most retirees even know about.

SPEAKER_00 1:18

The big one, and I'll just say it up front, is that Tennessee has zero state income tax on annuity withdrawals. Zero. The hall income tax, which used to tax investment income, was fully eliminated on January 1st, 2021.

SPEAKER_01 1:32

Aaron Powell And that applies to annuity distribution specifically, like not just wages?

SPEAKER_00 1:37

All income. Wages, pensions, annuity distributions. None of it is taxed at the state level. So uh when your aunt in Knoxville takes a withdrawal, she's only dealing with the federal tax bill. That's it.

SPEAKER_01 1:51

Aaron Powell That actually changes the math a lot compared to, say, someone doing the same thing in California or New York.

SPEAKER_00 1:58

Significantly. Think about it this way. Picture a retiree in Memphis, taking $40,000 a year out of a qualified annuity, meaning it was funded with pre-tax money, a $401K roll over. Um, if they're in the 22% federal bracket, they owe about $8,800 in federal tax, and then nothing to Tennessee. That same distribution in a state with a 5% or 6% income tax, you're adding $2,000 to $2,500 on top of that federal bill every single year.

SPEAKER_01 2:28

Over a 20-year retirement, that's real money.

SPEAKER_00 2:31

It compounds. And it's one of those things that doesn't show up in the rate comparison. And when you're looking at a carrier's credited rate, the state tax environment is almost invisible until you actually run the numbers.

SPEAKER_01 2:41

Okay, so let's talk about the rates. Because that's what most people are coming to this conversation for. What does the Myga landscape actually look like in Tennessee right now, heading into 2026?

SPEAKER_00 2:55

So a MyGA, multi-year guaranteed annuity, is an insurance contract that credits a fixed rate for a set term. Think of it structurally like a CD, but it's not a bank product. It's issued by an insurance carrier. And the rates right now are genuinely competitive across most term lengths.

SPEAKER_01 3:14

What are we talking roughly?

SPEAKER_00 3:16

So for a two-year contract, you're looking at somewhere in the range of 4.95 to 5.15%. Three-year is running around uh 5.55 to 5.65. And then it gets interesting. Five-year contracts are showing rates up around 6% at the low end, and some products are quoting as high as 6.3.

SPEAKER_01 3:35

Wait, 6.3 on a five-year? That seems high. Uh what's the catch?

SPEAKER_00 3:41

Good catch. And this is actually really important. Uh some of those higher end rates are using what's called simple interest, not compound interest. So the carrier quotes you 6.3, but that rate doesn't compound annually. The effective yield you actually earn over the term is lower than that headline number.

SPEAKER_01 3:58

So it's not apples to apples when you're comparing a 5.8 compound rate to a 6.3 simple interest rate.

SPEAKER_00 4:04

Exactly. And this trips people up constantly. You see the higher number, you think you're getting a better deal, and you're not necessarily uh a licensed agent should be showing you the effective compound yield, not just the stated rate.

SPEAKER_01 4:15

Um that's the kind of thing my aunt would not have known to ask about.

SPEAKER_00 4:20

Most people don't. And it shows up again at the seven year mark. Some products there are quoting six point one five to six point five. And again, the higher end of that range often reflects a simple interest structure. The ten year is running around five point nine to six percent, which is actually pretty solid for a decade-long commitment.

SPEAKER_01 4:36

What about the eight and nine year range? Those seem lower than the seven and ten.

SPEAKER_00 4:41

They are. And that's just how the carrier pricing works out. Sometimes you don't always get a straight line where longer equals higher rate. Um the eight-year is around five point two five to five point four, nine year is five point three five to five point four. It's not always intuitive.

SPEAKER_01 4:56

So someone who just assumes longer term, better rate could actually end up in a longer surrender period for no rate benefit.

SPEAKER_00 5:04

Right. And that's a real cost. Being locked up for eight years versus seven with a lower rate. That's why comparing across terms matters, not just within one term.

SPEAKER_01 5:15

Let's talk about how Tennessee's rules actually shape the market, because I think there's a piece here about a premium tax that carriers pay that most consumers don't know about.

SPEAKER_00 5:24

Yeah, so Tennessee charges insurance carriers a premium tax of 1.75% on annuity premiums collected in the state. The carrier pays that, not you directly, but they factor it into the rates they offer. So it does affect what you see on the rate sheet.

SPEAKER_01 5:38

So Tennessee rates might not always be the absolute highest in the country because of that tax.

SPEAKER_00 5:44

They can be competitive, uh, but they're not always going to lead the national market. The counterbalancing factor is that Nashville especially has seen a lot of retirement migration, which has brought more carriers into the state. More carriers competing for your premium tends to keep rates from falling too far behind.

SPEAKER_01 5:59

That's interesting. The growth of Nashville as a retirement destination actually has a downstream effect on annuity rates.

SPEAKER_00 6:07

Indirectly, yeah. More demand, more carriers want a piece of the market, more competition on rates. It's not a huge effect, but it's real.

SPEAKER_01 6:14

Okay, I want to spend some time on the guarantee association, because I think this is one of the most misunderstood things in this whole space. What does the Tennessee Life and Health Insurance Guarantee Association actually do?

SPEAKER_00 6:28

Aaron Ross Powell So the TLHA, I'll just call it the Guarantee Association, is a backstop. If a licensed insurance company becomes insolvent, the Guarantee Association steps in to cover annuity owners up to certain limits. And the key number for Tennessee is $250,000 in present value per owner, per insolvent insurer.

SPEAKER_01 6:49

And you don't have to apply for it or pay extra for it?

SPEAKER_00 6:51

Aaron Ross Powell Automatic. It's just there by statute. As long as the carrier was licensed in Tennessee, you're covered up to that limit.

SPEAKER_01 6:57

Aaron Powell So what happens if someone has, say, $300,000 they want to put into an annuity? Are they just unprotected on that extra $50,000?

SPEAKER_00 7:07

Not necessarily. And this is where the structure of the purchase matters. The limit is per insurer. So if you split that $300,000 across two separate carriers, well, $150,000 each, both contracts are fully within the coverage limit independently. Each one is covered separately.

SPEAKER_01 7:24

So laddering across carriers isn't just about right strategy, it's also a coverage strategy.

SPEAKER_00 7:29

Exactly. And that's actually a pretty common approach for people with larger premium amounts. A licensed agent can help you think through how to structure that.

SPEAKER_01 7:37

Now, I want to push back slightly on something because I've heard people treat the Guarantee Association like it's the same as FDAC insurance on a bank account. It's not, right?

SPEAKER_00 7:46

It's not the same, and that's an important distinction. FDIC covers bank deposits up to $250,000, and the federal government backs it. The Guarantee Association is a state level mechanism funded by the insurance industry itself. It's real protection, but it's not a federal guarantee, and it's not a substitute for choosing financially strong carriers in the first place.

SPEAKER_01 8:10

So carrier financial strength ratings still matter even with the guarantee association in place.

SPEAKER_00 8:16

They matter a lot. And best ratings. A, A, B, that range, those tell you something about the carrier's ability to meet its obligations without ever needing the guarantee association to step in. You want both. A strong carrier and the backstop coverage.

SPEAKER_01 8:35

Let's shift to the tax treatment piece because I think there's some nuance here that even people who know the basics get confused about. You mentioned qualified versus non-qualified. Can you walk through what that actually means in practice?

SPEAKER_00 8:52

Sure. A qualified annuity is one funded with pre-tax money, like a 401k rollover or a traditional IRA. All of that money has never been taxed. So when you take withdrawals, the entire amount is taxable as ordinary income at the federal level. And under current law, required minimum distributions kick in at age 73.

SPEAKER_01 9:12

And that's true whether you want to take the money out or not.

SPEAKER_00 9:15

Right. The IRS requires it. You can't just let it sit forever. Non-qualified is different. That's money you've already paid tax on, after tax dollars. In that case, only the earnings portion of your withdrawal is federally taxable. Your original principal comes back to you without being taxed again in the Which makes sense.

SPEAKER_01 9:34

You already paid tax on it once.

SPEAKER_00 9:36

Exactly. And then there's the deferral piece that applies to both gains inside a deferred annuity don't get taxed annually. They accumulate without a current year tax drag. So you're not getting a 1019 every year on the interest the way you would with a CD.

SPEAKER_01 9:52

That's actually the comparison I want to make. Because I know a lot of people in Tennessee, especially people who are pretty conservative with their money, are sitting there comparing mygas to bank CDs. And I think that comparison is more complicated than it looks.

SPEAKER_00 10:08

It is. And the rate difference alone doesn't tell the whole story. Top five year MIGA rates available in Tennessee have been running meaningfully above the national average five-year CD rate in 2026. But the more important structural difference is the tax treatment.

SPEAKER_01 10:23

Because CD interest gets taxed every year.

SPEAKER_00 10:26

Every year, at the federal level, whether you spent the money or not. So even if a CD and a MYGA had the same stated rate, which they don't right now, the MYGO would still come out ahead on an after-tax basis for someone who doesn't need the money immediately because the earnings are compounding without that annual tax drag.

SPEAKER_01 10:42

But there's a real trade-off on the other side, which is liquidity.

SPEAKER_00 10:46

Yes. And this is where I'd push back on anyone who treats my gaze as a straight CD replacement without thinking it through. A CD at a bank, you can often break it early with a relatively modest penalty. An annuity has a surrender charge schedule, and those charges can be meaningful in the early years of the contract.

SPEAKER_01 11:03

How much are we talking?

SPEAKER_00 11:05

It varies by contract and carrier, but it's not unusual to see surrender charges start at 7 or 8% in year one and step down over the term. Most mygas do allow penalty-free withdrawals of up to 10% of the account value per year during the surrender period. So there's some flexibility built in. But if you need more than that, you're paying a charge.

SPEAKER_01 11:24

So if someone's emergency fund isn't fully separate and they put everything into a seven-year MIGA and then their roof caves in two years later.

SPEAKER_00 11:33

They're either paying a surrender charge or they're limited to that 10% penalty-free window. That's why the conversation about liquidity needs to happen before you sign anything, not after.

SPEAKER_01 11:42

This actually connects to something I want to talk about, the laddering strategy. Because I think it's one of those things that sounds complicated, but is actually pretty intuitive once you explain it.

SPEAKER_00 11:54

It's really just staggering your maturities. Instead of putting $150,000 into one five-year mioga, you might split it $50,000 into a two-year, fifty into a four-year, fifty into a seven-year. Each contract matures at a different point. So you have access to chunks of money at different intervals without triggering surrender charges.

SPEAKER_01 12:15

And at each maturity, you can either take the money, roll it into a new contract at whatever rates are available then, or do something else entirely.

SPEAKER_00 12:24

Right. It also means you're not betting everything on today's rate environment. If rates are higher in two years, when your first contract matures, you can capture that. If they're lower, you've still got the longer-term contracts locked in at today's rates.

SPEAKER_01 12:37

I want to go back to my aunt's situation for a second because she's rolling over a 401k. And I know a lot of people do this wrong. What does the roll over process actually look like when you're moving money into an annuity?

SPEAKER_00 12:52

The most important thing, and I cannot stress this enough, is to do a direct trustee-to-trustee transfer. That means the money goes directly from the 401k custodian to the receiving annuity carrier. It never touches your hands.

SPEAKER_01 13:06

What happens if it does touch your hands?

SPEAKER_00 13:08

Two things. First, the plan is required to withhold 20% for federal taxes when they cut a check to you personally. So if your aunt has $150,000, she'd only receive a $120,000. She'd then have 60 days to complete the rollover, and she'd have to come up with the uh missing $30,000 out of pocket to avoid it being treated as a distribution.

SPEAKER_01 13:28

Wait, so she'd have to fund the gap herself, even though it was withheld for taxes?

SPEAKER_00 13:32

To roll the full amount and avoid the tax hit, yes. Otherwise, that $30,000 is treated as a taxable distribution. And if she's under $59 and a half, there's a 10% early withdrawal penalty on top of the income tax.

SPEAKER_01 13:48

That is such an easy mistake to make if nobody tells you ahead of time.

SPEAKER_00 13:51

Aaron Powell It happens more than it should. The fix is simple. Request the direct transfer before anything gets processed. Confirm the process with both the current plan custodian and the receiving carrier. Don't assume one side knows what the other is doing.

SPEAKER_01 14:04

Okay, um let's talk about the regulatory side of things, because I think Tennessee actually has some decent consumer protections that people should know about before they buy.

SPEAKER_00 14:26

So your agent is actually required to document that the product they're recommending fits your income, your assets, and your retirement goals.

SPEAKER_01 14:34

So it's not just here's a product, sign here. There's a process.

SPEAKER_00 14:39

There's supposed to be. And if an agent skips that process, that's a regulatory violation. It's one of the reasons why working with a licensed TDCI registered agent matters. They have skin in the game professionally.

SPEAKER_01 14:51

And then there's the free look period, which I think is genuinely underused.

SPEAKER_00 14:56

Once your contract arrives in the mail, you have ten full days to review it and cancel for a complete refund of your premium if anything doesn't match what you were quoted. That's not a small thing.

SPEAKER_01 15:08

What should people actually be checking during that window?

SPEAKER_00 15:11

Three things minimum. The credited rate. Uh does it match exactly what was on the illustration? The surrender charge schedule? How long is it? And what are the percentages year by year? And the beneficiary designations is the right person named. Uh I've heard of cases where a beneficiary designation was left blank or had an old name on it and nobody caught it until much later.

SPEAKER_01 15:32

That's the kind of thing that becomes a family problem when the owner passes away.

SPEAKER_00 15:37

Exactly. And the free look period is your window to fix it without any cost. Once that window closes, changes to beneficiary designations are usually still possible, but you're no longer in the cancellation window.

SPEAKER_01 15:49

So the 10 days isn't just a formality, it's actually a meaningful consumer protection if you use it.

SPEAKER_00 15:55

Use it, read the contract. I know it's dense, but at minimum verify those three things.

SPEAKER_01 15:59

I want to circle back to uh something you said earlier about defining your goal before you shop. Because I think people sometimes get into the rate conversation and forget to ask what the money is actually for.

SPEAKER_00 16:12

It's the most important question, and it often gets skipped. A MYGA is great if your goal is accumulation. You want to grow a lump sum tax deferred for a set number of years, and then access it or roll it. But if your goal is income you can't outlive, a MOIGA isn't really designed for that.

SPEAKER_01 16:29

That's where something like a sapia comes in. A single premium immediate annuity.

SPEAKER_00 16:34

Or an income annuity, more broadly, those are structured to pay you a stream of income, potentially for life. The mechanics are completely different from a MYGA. And if you go in shopping for the best rate, without knowing which type of contract you need, you might end up with the wrong product entirely.

SPEAKER_01 16:49

Which is an expensive mistake to undo given the surrender charges.

SPEAKER_00 16:53

Very expensive? Uh that's not a hypothetical. It happens. Someone buys a seven-year MIGA because the rate looked great, and then two years in they realized they actually needed income, and now they're stuck or paying to get out.

SPEAKER_01 17:05

So the conversation with a licensed agent isn't just about which carrier has the best rate. It's about figuring out what you actually need first.

SPEAKER_00 17:13

That should be the first 30 minutes of any annuity conversation. Goals, timeline, liquidity needs, tax situation. The rate comparison comes after that.

SPEAKER_01 17:22

And speaking of rate comparisons, you mentioned earlier that even a quarter of a percent difference matters on a larger premium. Can you put some numbers on that?

SPEAKER_00 17:32

Sure. Take $200,000 five-year term. A quarter percent difference in credited rate, say five point five versus five point seven five over five years, compounding. That's roughly two thousand five hundred to three thousand dollars in additional growth. On a larger premium or a longer term, it's more. It's not nothing.

SPEAKER_01 17:53

And that's why shopping multiple carriers matters, not just going with the first one your agent mentions.

SPEAKER_00 17:59

A good agent should be showing you side-by-side comparisons from multiple carriers without you having to ask. If they're only showing you one product, that's a flag.

SPEAKER_01 18:07

Okay, I think the last thing I want to cover is just for someone in Tennessee who's never bought an annuity before, what does the actual buying process look like? Like from zero to contract in hand?

SPEAKER_00 18:20

Step one is really that goal conversation we talked about. Step two is working with a licensed agent to compare carriers and terms, and verifying the agent holds a current Tennessee insurance license through the TDCI. Step three is the application, which involves disclosing your financial situation, so the agent can document suitability.

SPEAKER_01 18:39

And that documentation isn't just paperwork. What it's actually the regulatory protection we talked about.

SPEAKER_00 18:45

Right. Then if it's a rollover, you initiate the transfer process, direct trustee to trustee, as we discussed. The carrier issues the contract, it arrives in the mail, and then you have your 10-day free look window to review everything before it's final.

SPEAKER_01 18:59

Aaron Powell It's not a fast process, is it?

SPEAKER_00 19:01

Aaron Powell It shouldn't be. An annuity is a long-term insurance contract. We're talking five, seven, ten years. Rushing it is how you end up in the wrong product. The carriers also have their own processing timelines. And rollovers, especially, can take a few weeks depending on the sending custodian.

SPEAKER_01 19:19

Aaron Powell So if someone's thinking, I want to get this done before the end of the quarter, that timeline pressure is probably not your friend.

SPEAKER_00 19:27

It's not. And any agent who's creating urgency around a deadline, this rate expires Friday, you need to decide now. That's worth slowing down and asking questions about. Rates do change, that's real. But a legitimate agent will give you the information you need to make a decision, not pressure you into one.

SPEAKER_01 19:46

That feels like a good note to end on, actually. Tennessee is genuinely a favorable environment for annuity owners. No state income tax, a real guarantee association backstop, regulatory oversight that requires documented suitability. But none of that matters if you're in the wrong product or you bought it under pressure without understanding the terms.

SPEAKER_00 20:07

The state environment is the foundation, but the decision still has to be right for your specific situation. That's why the conversation with a licensed agent, someone who knows Tennessee carriers, knows the current rate environment, and is going to take the time to understand your goals. That's not optional. That's the whole thing.

SPEAKER_01 20:24

And for what it's worth, I'm going to tell my aunt exactly that. Start with the goal, get the direct transfer paperwork right, read the contract during the free look. Don't let the rate headline be the only number you look at.

SPEAKER_00 20:38

That's honestly a better checklist than most people walk in with. She'll be fine.

SPEAKER_01 20:45

That's it for today's Tennessee Annuity Show.

SPEAKER_00 20:48

If you have questions about your specific situation, talk to a licensed advisor.

SPEAKER_01 20:51

Visit Tennessee Annuity Rates.com for show notes or to get matched to an advisor.

SPEAKER_00 20:56

We'll see you next time.