530 / What is a market value adjusted annuity?

Generally, if the prevailing interest rate at the time of surrender is higher than the contract’s guaranteed rate, the taxpayer’s cash surrender value will be adjusted downward. On the other hand, if rates move lower than the rate guaranteed under the contract, the taxpayer can receive a surrender value that may be more than the original investment—the surrender value will be increased to reflect the higher annuity rate.

As with other fixed annuities, if a taxpayer purchases a fixed MVA annuity and holds it for the duration of the product’s guarantee period—which may be as short as three years or upwards of 15 years—the product simply pays the guaranteed rate.

In recent years, the prevailing interest rates have been so low that annuity carriers have only been able to offer products with similarly low guaranteed interest rates, so there was very little difference to be realized with MVA annuities. Because interest rates on some investments—including many of those commonly held by the carriers themselves—have begun to creep higher, carriers have likewise started to offer higher rates on certain products.