Q: What are the advantages and disadvantages of charitable gift annuities? I understand how they work, and wonder if this is a good way to give to charitable organizations. We give enough annually to one charity to qualify to participate in the charitable gift annuity plan. My husband and I have five to 10 years left in the workforce. We do not need the income now.
M.B., via e-mail
A: "If you contribute assets to a charitable gift annuity, you can take any applicable tax deductions for the year of your contribution, while avoiding having to pay capital-gains taxes on certain donations, such as land or stocks," says David Bendix, CEO of Bendix Financial Group in Garden City, N.Y. "You also avoid having to pay legal or accounting fees that would be required if you had set up your own trust."
A disadvantage of not setting up your own gift trust, Mr. Bendix says, is that you will lose control over how the assets are invested.
But with any charitable gift annuity, "there are far more advantages to both the giver and the recipients than there are disadvantages," Bendix says.
That's especially true down the road, when you begin to receive annuity payments - an income stream that is based on your contributions.
Q: When the stock market began its fall over two years ago I shifted my equity holdings to a bond fund and money-market account. I have $7,500 in a general bond fund (corporate and US Treasuries) and $7,500 in a money fund. Both are tax-sheltered. I am in my 50s. Should I now be shifting money back into stocks? What about plain old bank savings accounts?
F.S., New York
A: "Start shifting money back into stocks," says Bendix. "Over the next three to six months, begin systematically transferring small amounts into a tax-sheltered growth-and-income fund and a global fund," Bendix says. "Given your age, you should probably have between 40 and 50 percent of your investment assets in equities."
Plain-vanilla savings accounts are now looking better than many money-market funds, Bendix says, since their expenses are low and interest earnings are comparable or higher than money funds.
But if you shift sheltered assets into a savings account, Bendix adds, make sure that the account is also tax sheltered to avoid paying any possible taxes and penalties.