If you don’t need current income, consider a tax-deferred fixed annuity as an alternative to municipal bonds. TIAA-CREF, for example, currently offers an annuity that pays 4.7 percent, with a 3 percent lifetime floor. The 4.7 percent rate is guaranteed for one year, although it could adjust upward each quarter. With this annuity, there are no surrender charges and investors can take a full withdrawal at any time.
As is the case with any deferred annuity, taxes aren’t payable until the money is withdrawn. Tax deferral can continue until at least age 85 and income taxes can be further delayed through annuitization by the beneficiaries. That is, your beneficiaries can stretch out annuity payments, which will be partially tax-sheltered.
Indeed, some deferred annuities allow you to make an irrevocable beneficiary payout selection. You might name your daughter, for example, and stipulate a lifetime payout. This would guarantee an income stream while keeping the money in the annuity from your daughter’s creditors.