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(Part of a series of articles on charitable giving and the Union County Foundation by David Vollrath - Executive Director) I’ve yet to find anyone who enjoys paying income tax. Today’s article suggests a way to offset most of the federal tax (savings bonds are state and local tax exempt) on maturing savings bonds. As pointed out in our last article transferring savings bonds during life to charity in exchange for a gift annuity is not allowable. One can minimize taxes though by using the proceeds from your matured savings bond to purchase a charitable gift annuity. Here’s how it might work. Jim redeems at maturity his $10,000 savings bond at his local bank. You will recall that this redemption process is easily accomplished, fee free, at any of thousands of bank locations throughout the country. Once Jim has the $10,000 of proceeds from the matured savings bond he need simply contact a charity such as the Union County Foundation and obtain a $10,000 charitable gift annuity. The Union County Foundation uniquely allows annuitants to name the Union County charity(s) of their choosing to be the ultimate beneficiaries of the gift annuity. The tax consequences of this simple plan are as follows: After redeeming the savings bond Jim will be responsible this year for $5000 of interest income. This represents the untaxed accumulated interest income from the savings bond. However Jim will receive a $4000 charitable income tax deduction this year from the purchase of his charitable gift annuity. This means effectively Jim has only $1000 left of taxable income from the savings bond. If Jim and his wife are in the 15% tax bracket (up to $58100 of adjusted gross income) then Jim’s tax liability will only be $150. Jim being 70 years old is earning 6.5% annual payout on his newly purchased Union County Foundation charitable gift annuity, which will annually pay him more than 4 times the one time $150 tax liability. The above example shows how "Jim" might use a charitable gift annuity to specifically minimize the tax liabilities from a maturing savings bond. The same tax advantages resulting from the purchase of a charitable gift annuity can help minimize your tax burden from all other forms of income as well. Charitable gift annuities "pay out" at above market interest rates, result in significant charitable tax deductions, and ultimately benefit the Union County charity(s) of your choice. Truly a win/win situation. The Union County Foundation is equipped to help you achieve your charitable goals by providing as a free service: resource information, charitable gift annuities/life income plans, and assistance with planned giving and estate planning. Please call us at 937-642-9618, email us at commfounduc@imetweb.net, or stop by our Marysville office at 126 N. Main St. We are committed to helping you…. "preserve your footprint in time." |
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