What Is a Market Value Adjustment? The Second Charge on Early Annuity Withdrawals

What a market value adjustment is, in plain words

A market value adjustment (MVA) is a change to your annuity's value when you withdraw, surrender or annuitize before a set date. Regulators define it as "a positive or negative adjustment" based on interest rates or an interest rate index (Interstate Insurance Product Regulation Commission (IIPRC), Additional Standards for Market Value Adjustment Feature Provided Through the General Account, adopted August 15, 2024).

The logic is simple. The insurer bought bonds to pay your guaranteed rate. If rates have risen since you bought, those bonds are worth less, so an early withdrawal is reduced. If rates have fallen, the bonds are worth more, so the adjustment can add to your withdrawal.

The MVA is usually found in multi-year guaranteed annuities and some fixed indexed annuities. It stops applying on the "guaranteed benefit date," which for a multi-year rate guarantee is the end of the guarantee period (IIPRC, August 15, 2024). See how a multi-year guaranteed annuity (MYGA) works.

The Securities and Exchange Commission (SEC) warns that these adjustments "are often negative and may significantly lower the value of your annuity" and "are in addition to any surrender charge that applies" (SEC Investor.gov, Annuities, checked October 14, 2026).

How it is often described, and what the contract says

In a sales meeting you may hear: "You can take 10% a year free, and there is only a small charge if you leave early." That sentence is usually about the surrender charge. The MVA is a second, separate calculation.

You may also hear: "The MVA can work in your favor." That is true when rates fall. The contract applies the same formula in both directions. If the contract limits how much the MVA can add, the standard requires an identical dollar limit on how much it can subtract (IIPRC, August 15, 2024).

The detail that is rarely mentioned: in rate-based formulas the insurer may add a margin of up to 0.25 percentage points to the current rate it uses in the calculation (IIPRC, August 15, 2024). That margin makes the adjustment less favorable to you. With it, the MVA can be slightly negative even when rates have not moved at all.

Whether the MVA also applies to your free withdrawal amount depends on the contract. Many contracts apply it only to the part above the free amount, as with the surrender charge, but you should not assume it. Read the MVA section, or ask for the answer in writing.

The common formula, step by step

The IIPRC standard lists two sample formulas. The most common one for a rate-based MVA is:

MVA factor = [(1 + I) / (1 + J + K)]^N minus 1

• I is the guaranteed rate your contract is earning.
• J is the rate the insurer now offers on new money for a similar term, or the current value of a stated index.
• K is the optional margin, no more than 0.25 percentage points (zero for index-based formulas).
• N is the time left until the guaranteed benefit date, in years.

The MVA in dollars is the factor times the amount it applies to. A simpler sample in the same standard is [I minus (J + K)] times N (IIPRC, August 15, 2024). Your contract must state its formula, the index or rate used, and the order in which the MVA and other charges are applied.

Two protections come with it. The contract must give you a window of at least 30 consecutive days, including the guaranteed benefit date, to take your money with no MVA, and the insurer must mail notice 15 to 45 days before that window opens. Your annual report must show the value before the MVA and the MVA formula or amount (IIPRC, August 15, 2024).

How far can it go? The minimum value floor

The MVA cannot push your surrender value below the state minimum. Under the National Association of Insurance Commissioners (NAIC) model law, the minimum is based on 87.5% of premiums, accumulated at an interest rate of no more than 3% and no less than 0.15% a year, less certain charges (NAIC Model 805, Standard Nonforfeiture Law for Individual Deferred Annuities, Section 4, amended Fall 2020).

For contracts filed under the IIPRC standard, the value after the MVA must meet that minimum, or the contract must contain a floor that does (IIPRC, August 15, 2024, Appendix B). Your state's version of the law controls.

So the floor is real, but it is low. It protects against losing most of your money. It does not protect you from losing several percent in the early years.

When an annuity with an MVA can make sense

The MVA moves interest rate risk from the insurer to you, and in exchange the insurer can often credit a higher rate. The IIPRC requires an actuary to certify that the trade-off was reviewed and that the rate or other design differences "will provide value to the contract owner relative to the product without the MVA" (IIPRC, August 15, 2024).

That trade can be reasonable if you are confident you will hold the contract to the end of the term, you have other savings for emergencies, and you plan to use only the free withdrawals. If you hold to the end, the MVA never touches your money.

It is a poor fit if there is a real chance you will need the money early, for a home, health costs or a spouse's needs.

How to check before you sign

Ask for the contract's MVA section and a written example using today's rates, rates 1 point higher and rates 1 point lower. Ask whether the formula uses the 0.25-point margin.

Some MVA annuities are registered with the SEC as securities (SEC Investor.gov, checked October 14, 2026). For those, you should receive a prospectus, and you can look up the salesperson on FINRA BrokerCheck (Financial Industry Regulatory Authority).

For any annuity, your state insurance department can confirm the seller's license, and handles complaints. You can look up the insurer itself in the NAIC Consumer Insurance Search. Use your free-look period to read the MVA section before it is too late to cancel without charges.

A plain example with numbers

This is a hypothetical contract, not any real product. It uses the IIPRC sample formula with K set to zero.

• $300,000 single premium, 5-year guaranteed rate of 5.00% (I = 5%).
• At the start of contract year 2 the value is $315,000, with 4 years left (N = 4).
• Free withdrawal: 10% of value, or $31,500, with no charge and no MVA in this hypothetical contract.
• You take $120,000. The excess above the free amount is $88,500.
• Year 2 surrender charge: 6% of the excess.

The arithmetic for rates up: 1.05 divided by 1.06 is 0.990566. Raised to the 4th power it is 0.962790, so the factor is minus 3.72%. Then $88,500 times minus 3.72% is minus $3,292.66. The surrender charge is figured separately. In this hypothetical both are applied to the $88,500; your contract states its own order.

If the contract adds the full 0.25-point margin (K), the same three cases become minus $4,091.79, minus $837.86 and plus $2,574.38. That middle number is the cost of the margin when rates have not moved at all.

Sources

The Retirement Literacy Foundation is a 501(c)(3) public charity. This page is general education, not tax, legal or investment advice. Nothing is sold here, no product is recommended, and RLF accepts no funding from financial companies. Rules and figures change; each one above shows its source and date. Check anything you plan to act on with your state insurance department or a qualified professional who is not paid on the product.