Written By: Robert Zimmerman | H&R Advisory Service, LLC
Regularly, we receive an offer of $100 or $150 in the mail by a bank as an incentive for us to open a ‘high yield’ savings account. The high yield could amount to an interest rate of around 1%. The offer does not mention that they will also send along a 1099 form every year at tax time. This informs the IRS of how much interest you received, so that they can participate.
More and more, you will be made aware of a ‘benefit’ account as an alternative to the CD or savings account.
On this offering, you will be able to choose an alternative way for interest to be credited to your deposit. Typically, the credit will be linked to the performance of a stock market index.
Since NO ONE knows how the stock market will perform in the future, your interest rate cannot be stated. The only thing that you will know about your interest is that it will never be less than 0%, even if the stock market takes a plunge.
More of interest to you, however, are some of the ancillary benefits of this type of account. In particular, for those of you who are intending to tap the account for income at some point in the future, you may be told that the ‘income’ value with be guaranteed to grow. For example, it may actually double in value over time, regardless of the stock market index, and the income you take from the account can be guaranteed to last for as long as you live.
Some of you may be holding the money as an emergency fund in case you need money for professional health care. If that is on your menu, you may be told about how the account value can increase to meet that need.
If you are like many other people, your intent may be to simply let the account grow and then pass along to your heirs. With that in mind, there may be a benefit that ‘guarantees’ that this account will increase in value every year. As an example, a company may offer to DOUBLE the value to your heirs after you have left the funds in the account for 10 years.
With this account, we are talking only about your ‘safe money’. We are not talking about your sporting money that you take directly to the stock market ‘casino’, or the race track. The account is suitable for those funds that have a ‘principal guarantee’ as a requirement.
Yes, the ‘benefit’ account we refer to is an ‘annuity’, which means you are not working with a bank, but rather with an insurance company. Since there are constant upgrades in the insurance arena, it may be that your fully informed adviser is a great assistance in guiding your action. (Any features described above will vary with the actual account you are being offered.)
About Robert Zimmerman: Provides asset management services for those seeking safe money alternatives, tax saving ideas, and legacy building choices, including charitable gifting. For any questions, he can be reached at 248-952-5882.
Annuity123 is an educational platform only. Annuity123 does not offer insurance, investment, or tax advice. You should always seek the guidance of qualified and licensed professionals concerning insurance, investment, or tax matters.