Ask the expert: IRA annuities
August 26, 2010
Q: My IRA annuity will be maturing soon. Should I leave it for one more year at 3 percent, or move it to another investment? I'm 74.
A: First things first. Before recommitting your annuity, make sure you have the liquidity in the plan necessary to meet your minimum required distribution. Since you are over age 70 1/2, chances are you have already begun to make those required minimum distributions, and even though they were made optional for 2009, they resume for 2010.
Assuming that enough of your IRA is in liquid assets to meet your required distributions, the question becomes one of whether 3 percent is a good rate on a guaranteed investment over the year ahead. It is hard to believe you would ever want to lock into such a low rate, but in the current environment, 3 percent looks pretty good.
By way of comparison, the average rate on savings accounts is about 0.19 percent, according to the FDIC. Money market rates nationally are averaging 0.27 percent. Perhaps the best comparison is with one-year CD rates, since they represent a similar time commitment to the one your are considering. One-year CD rates average 0.68 percent, and even the best CD rates on MoneyRates.com are in the 1.5 percent neighborhood for one year.
All things considered, then, 3 percent looks pretty good right now. You should be wary of locking in for very long periods at today's unusually low rates, because it would be fighting against history to assume rates would stay this low for long. For one year, though, there isn't too much risk of missing out on higher rates--you'll get another crack at reinvesting before too long.
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