A variable annuity withdrawal may help pay off credit-card bill

Q: I have $75,000 in a variable annuity, and I will be 59 in July. I am in debt by $30,000. Do you think I should take some of the money out of the variable annuity to pay off the debt when I turn 59-1/2? Or should I continue to make payments? I am discouraged because it is a combination of credit card debt and a home equity loan that used to be a good deal but now has escalating interest payments. I'm bothered by this debt.
P.H., via e-mail

A: Before you take money out of the annuity, Rita Cheng, a certified financial planner in Bethesda, Md., has a few questions.

First, what, if any, are its surrender charges? At age 59-1/2, the 10 percent income penalty for early withdrawal may no longer apply. But make sure that you are aware of any other fees or tax consequences.

Second, is this an IRA annuity? If it is, she says, it's important to consider tax implications, meaning all of the money that you withdraw will be taxed as ordinary income.

If you owe a lot of money, the best return on your investment is retiring high interest rate credit card debt, Ms. Cheng says. She suggests taking enough money out of the annuity to retire your credit card debt. If the rate of return on your annuity is greater than the interest rate you're paying on your home equity line of credit, however, she advises to not pay it off.

Q: I have a 5 percent mortgage with a balance of $53,000. If I pay off the mortgage, I save $500 a month. But this will affect my tax-free parsonage allowance, as the monthly payment would drop to zero. At what salary level does it make sense for a minister to pay off such a mortgage?
J.G., via e-mail

A: It isn't necessary to discontinue the parsonage allowance simply because you pay off the mortgage, says Vince Clanton, a certified financial planner in Atlanta.

The money is part of your pay package, he says, and is a matter between you and your church. It would be payable if you owned your home outright, had a mortgage, or paid rent to live in an apartment, he says.

As for the mortgage, a 5 percent interest rate on a home loan is good since rates are much higher today. Mr. Clanton suggests that it may be advantageous to keep the mortgage, and invest the funds that you would have used to pay it off.

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