In Your Interest – by Valerie Rumbough

Looking for a great return that is fixed? You are not alone. With interest rates so low, it is hard to find anything that is earning a good rate of return. There are some options out there, though.

Rumbough

Sometimes you can find a decent rate through an annuity purchased from an insurance company, called a commercial annuity. Be aware, though, that along with the annuity, you may also be purchasing life insurance, which you may or may not need. This drives up the cost slightly.

Also, with annuities, you need to make sure you plan your withdrawal needs carefully before purchasing. Withdrawing more than the scheduled amount could cost you a hefty penalty. There may or may not be a death benefit for your family, depending on the type of annuity.

If you are charitably inclined, you may want to look at a gift annuity, offered by various charities. The annuity amount is fixed and guaranteed for the rest of your life, and the charity gets the remainder left in the account at your death. Charities usually only offer annuities that benefit themselves at your death, but foundations may offer ones that benefit a number of different charities.

You can usually purchase annuities that pay for the remainder of your life alone, or your spouse’s as well. Because of the charitable gift at the end, you receive a charitable contribution deduction when you purchase the annuity for a portion of the value. Therefore, there are no death benefits to family members. The payout you are eligible to receive at the contract date is linked to your age; thus, the older you are, the higher the rate you qualify for. This may also be true with a commercial annuity, depending on the plan you choose.

So, if you are looking for a way to lock in an income stream, you may want to contact your local charity, foundation, or insurance agent to ask about the products they can offer you.

– Rumbough, CPA, CFP, is chief operations officer with the Baptist Foundation of South Carolina. Contact her at 800-723-7242. In accordance with IRS Circular 230, any U.S. federal tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein.