Why Tennessee Is One of the Better States to Hold an Annuity
If you live in Nashville, Knoxville, Memphis, or anywhere else in Tennessee, you may already know the state has no income tax on wages or pensions. What you might not realize is that this also applies to annuity withdrawals. Since the Hall Income Tax was fully eliminated on January 1, 2021, Tennessee residents owe zero state income tax on annuity distributions. The only tax you’ll face on withdrawals is at the federal level.
That single fact changes the math considerably when you’re comparing annuity contracts to other savings vehicles. Combined with a competitive carrier market and strong regulatory oversight from the Tennessee Department of Commerce and Insurance (TDCI), Tennessee residents have meaningful options heading into 2026.
Note: This article is for educational purposes only and does not constitute personalized financial, tax, or legal advice. Always speak with a licensed annuity professional before making any purchase decision.
Current MYGA Rate Ranges for Tennessee Residents (2026)
A multi-year guaranteed annuity (MYGA) is an insurance contract that credits a fixed rate for a set term — similar in structure to a bank CD, but with tax-deferred growth and, in many cases, higher credited rates. Below are representative rate ranges currently available to Tennessee residents across common contract terms. Rates are sourced from AnnuityRateWatch and are subject to change without notice. Always verify current rates with a licensed agent before purchasing.
- 2-Year MYGA: Approximately 4.95% – 5.15% APY from carriers with AM Best ratings of B++ to A-
- 3-Year MYGA: Approximately 5.55% – 5.65% APY; some products use simple interest — effective compound yield will be lower
- 4-Year MYGA: Approximately 5.25% – 5.30% APY from carriers rated B++ to A
- 5-Year MYGA: Approximately 6.00% – 6.30% APY; note that the higher end uses simple interest
- 6-Year MYGA: Approximately 5.50% – 6.00% APY
- 7-Year MYGA: Approximately 6.15% – 6.50% APY; higher rates may reflect simple interest structures
- 8-Year MYGA: Approximately 5.25% – 5.40% APY
- 9-Year MYGA: Approximately 5.35% – 5.40% APY
- 10-Year MYGA: Approximately 5.90% – 6.05% APY
Important disclosures: Products marked as simple interest (SI) state a rate that does not compound annually — the effective compound yield is lower than the advertised figure. Minimum premiums shown by carriers typically apply to non-qualified (after-tax) funds. AM Best ratings reflect carrier financial strength at the time of publication and can change. This is not a recommendation to purchase any specific product.
How Tennessee’s Rules Shape the Annuity Market
Premium Tax
Tennessee charges insurance carriers a premium tax of 1.75% on annuity premiums collected in the state. Carriers factor this cost into the rates they offer, which means Tennessee rates are generally competitive but may not always lead the national market. The good news: increased retirement migration into cities like Nashville has brought more carriers into the state, and competition tends to keep rates from falling too far behind national leaders.
Regulatory Oversight
The Tennessee Department of Commerce and Insurance (TDCI) licenses all annuity agents operating in the state, reviews and approves products before they can be sold, and enforces suitability standards aligned with the NAIC model regulation. In plain terms, your agent is required to document that the product they recommend fits your income, assets, and retirement goals before completing a sale. That’s a meaningful consumer protection.
Free Look Period
Every annuity contract issued in Tennessee includes a 10-day free look period. Once your contract arrives in the mail, you have 10 full days to review it and cancel for a complete refund of your premium if anything doesn’t match what you were quoted. Use that window to verify the credited rate, the surrender charge schedule, and your beneficiary designations.
Tennessee Life and Health Insurance Guaranty Association
The Tennessee Life and Health Insurance Guaranty Association (TLHIGA) provides a backstop for annuity owners if a licensed insurance company becomes insolvent. Coverage is automatic — you don’t apply for it, and there’s no additional cost.
The current coverage limit is $250,000 in present value per annuity owner, per insolvent insurer. If you hold contracts with two separate carriers and each is under $250,000, both are fully covered independently. This is why many Tennessee residents with larger premium amounts choose to split their funds across two carriers — keeping each contract within the coverage threshold.
TLHIGA coverage is real, but it has limits. It is not a substitute for choosing financially strong carriers. A licensed agent can help you evaluate carrier ratings alongside coverage limits when structuring your purchase.
Annuity Tax Treatment in Tennessee
Tennessee’s tax environment is straightforward for annuity owners:
- State income tax on withdrawals: None. Tennessee has no state income tax on any form of income, including annuity distributions.
- Federal income tax — qualified annuities: If your annuity was funded through a 401(k) rollover or other pre-tax retirement account, withdrawals are fully taxable as ordinary income at the federal level. Required minimum distributions (RMDs) begin at age 73 under current federal law.
- Federal income tax — non-qualified annuities: If funded with after-tax dollars, only the earnings portion of each withdrawal is federally taxable. The return of your original principal is not taxed again.
- Tax deferral inside the contract: Gains inside a deferred annuity are not taxed annually. They accumulate without current-year tax drag until you take a distribution. This federal deferral benefit applies regardless of Tennessee’s zero state income tax.
To illustrate: a Memphis retiree taking a $40,000 annual withdrawal from a qualified annuity in the 22% federal bracket would owe approximately $8,800 in federal income tax — and nothing to the state of Tennessee. That same distribution in a high-tax state would carry an additional state-level burden on top of the federal bill.
Comparing MYGA Rates to CD Rates in Tennessee
Tennessee residents often ask how annuity rates stack up against bank CDs. As of mid-2026, top 5-year MYGA rates available in Tennessee have been running meaningfully above the national average 5-year CD rate. Beyond the rate difference, there is a structural distinction worth understanding: CD interest is generally taxable in the year it is earned at the federal level, while annuity earnings grow tax-deferred until withdrawal.
For money you don’t expect to need for five or more years, the combination of a competitive credited rate and federal tax deferral makes the MYGA worth a careful look alongside a CD. That said, annuities are insurance contracts — not bank deposits — and they carry surrender charges if you need to access funds before the term ends. A licensed agent can walk you through the trade-offs for your specific situation.
How to Approach Buying an Annuity in Tennessee
- Define your goal first. Are you trying to accumulate savings tax-deferred, or do you need a stream of income you can’t outlive? A MYGA serves the first goal well. A single premium immediate annuity (SPIA) or income annuity may be more appropriate for the second. Knowing your objective before you shop prevents you from purchasing the wrong type of contract.
- Compare multiple carriers and terms. Even within the same contract term, credited rates vary from one carrier to the next. A difference of 0.25% on a $200,000 premium adds up meaningfully over a 5- or 7-year term. Ask a licensed agent to show you side-by-side comparisons from multiple carriers.
- Understand the rollover process if applicable. If you’re moving funds from a 401(k) or IRA, request a direct trustee-to-trustee transfer. This keeps the funds in tax-deferred status and avoids the 60-day rollover window and mandatory withholding that apply if a check is made payable to you personally. Confirm the process with both your current plan custodian and the receiving carrier before submitting paperwork.
- Review liquidity provisions carefully. Most MYGAs permit penalty-free withdrawals of up to 10% of account value per year during the surrender period. If you anticipate needing more than that in any given year, a shorter term or a laddered approach — splitting your premium across contracts with staggered maturity dates — may be worth discussing with your agent.
- Read your contract during the free look period. Once your contract arrives, verify the credited rate, term length, surrender charge schedule, and beneficiary designations before the 10-day free look window closes. If anything differs from what you were quoted, contact your agent immediately.
Frequently Asked Questions About Tennessee Annuity Rates
Does Tennessee tax annuity withdrawals?
No. Tennessee eliminated the Hall Income Tax effective January 1, 2021, and now has no state income tax on any form of income, including annuity distributions. Tennessee residents owe only federal income tax on annuity withdrawals, making the state one of the more favorable environments for retirees drawing annuity income.
What does the Tennessee guaranty association cover?
The Tennessee Life and Health Insurance Guaranty Association (TLHIGA) covers annuity contracts up to $250,000 in present value per owner, per insolvent insurer. Coverage is automatic for contracts issued by carriers licensed in Tennessee. If you have more than $250,000 to place, a licensed agent can help you structure the purchase across multiple carriers to keep each contract within the coverage limit.
Is a direct 401(k) rollover into an annuity taxable in Tennessee?
A direct trustee-to-trustee rollover from a 401(k) to an annuity IRA is not a taxable event at the time of transfer — at either the federal or state level. The funds retain their tax-deferred status, and you begin earning the annuity’s credited rate immediately. Withdrawals in retirement will be subject to federal income tax as ordinary income. Tennessee will not tax those withdrawals at the state level.
How do MYGA rates compare to CD rates for Tennessee residents?
Top MYGA rates available in Tennessee have generally exceeded the national average 5-year CD rate in 2026. Beyond the rate comparison, MYGA earnings grow tax-deferred at the federal level, while CD interest is typically taxable in the year earned. For longer time horizons, the combination of rate and deferral can be meaningful — but annuities carry surrender charges and are not FDIC-insured. Speak with a licensed agent to compare options based on your timeline and liquidity needs.
How do I find a licensed annuity agent in Tennessee?
The Tennessee Department of Commerce and Insurance (TDCI) maintains a public license lookup tool where you can verify that any agent you work with holds a current Tennessee insurance license. You can also contact us at Tennessee Annuity Rates to be connected with a licensed professional who works with Tennessee residents in Nashville, Knoxville, Memphis, and surrounding areas.