An annuity is an insurance product offered through a licensed representative. They have been in existence for over 200 years. The investment vehicles allow you to accumulate tax-deferred funds, and, if you choose, receive future a guaranteed income stream through a process called annuitization. This can be paid for a specific amount of time or for the rest of your life. There are many types of annuities, and they can come with many different features.
A non-profit organization is a group that is not in the business of making money and does not distribute funds or gains to owners or shareholders.
The IRS mandates that such an organization must be organized and operated exclusively for exempt purposes. These purposes can be charitable, religious, educational, scientific or literary or involve testing for public safety, fostering of national or international amateur sports competition, or prevention of cruelty to children or animals.
To manage day-to-day activities and to finance certain goals, non-profits need to raise funds. To maximize these funds and their returns, they might invest in the stock market. The stock market has outperformed cash and cash equivalents over the long term.
Video of the Day
Investing in a variable annuity is a way to invest in the stock market and insure your investment. An annuity company does this by charging an internal fee to purchase this insurance on your principal. If a non-profit is looking to protect its assets, a variable annuity is a good option.
Investing in an annuity can also allow you to withdraw assets immediately and have a floor on your risk. For example, if a donor were to give a non-profit $100,000, the non-profit can put the money in a savings account and start drawing on it. The interest rate might or might not be competitive.
If the non-profit organization invests in a variable annuity, it can start withdrawing money immediately and invest in the market, but guarantee itself the ability to withdraw at least $100,000. If the market offers good returns the non-profit can withdraw more. If the market goes down the organization will not receive a return, but it didn't risk its $100,000 investment.
Members of the board of a non-profit have fiduciary responsibility. This means they have the duty to responsibly invest funds that are donated. If donors feel investments are irresponsible, they can choose not to invest.
The investments of all non-profits are public information, and can be viewed at websites such as http://foundationcenter.org/. Investing assets in a variable annuity allows board members to allocate funds into the stock market, but still have some guarantees and meet their fiduciary responsibility.
- Red Cross image by JASON WINTER from Fotolia.com