Church Stewardship: The Silver Lining In The Current Bad Economy
You’ve heard all your life that every cloud has a silver lining. You have also heard people say, “the knife cuts both ways” and “there are two sides to every coin.” Sometimes it is difficult to see the bright side. The current economy, bad as it is, offers a tremendous opportunity for church stewardship planning in decades.
The Internal Revenue Service uses the “Section 7520 Rate” — commonly called the AFR — to calculate the income tax deduction you receive for a planned giving contribution to your church.
Just to give you some historical perspective, a couple of years ago, in March 2007, the AFR was 5.8%. A year later, in March of 2008, it had dropped to 3.6%. In February 2009, it hit the lowest it has ever been since Sec. 7520 went into effect in 1989: 2.0%.
But what, you ask, does this have to do with church stewardship? A great deal! Here’s an example.
Let’s assume that you are 75 years old and that you have a $50,000 certificate of deposit at the bank earning 4.0%. Your money is earning $2,000 a year in interest. But the interest is taxable. If you are in a 15% tax rate, you pay $300 in taxes out of that $2000. You are left with only $1,700 to buy groceries and other necessities.
You need more income. You have applied church stewardship principles to managing your money for most of your life. You would not be opposed to increasing your income and helping your church at the same time. In meeting with your financial planner, she suggests you look at a charitable gift annuity (CGA).
Charitable gift annuities are a very plain vanilla church stewardship planning techniques. Here is a quick summary of the benefits of using your $50,000 CD to fund a CGA.
1. Your income will increase from $2,000 a year to $3,150.
2. 78.7% of the $3,150 is exempt from income tax. This means more money in your pocket.
3. When you die, your church receives $50,000. This allows you to achieve one of your life’s major church stewardship goals of making a substantial gift to your church.
Let’s change the assumptions a little. Let’s say you were age 75 in March of 2000 and set up the same CGA when the Sec. 7520 rate was 8.0%. The amount excluded from tax would have been only 53.7%. Putting this church stewardship plan if effect today means you pay less income tax and have more money for to spend.
If you, as an individual, take church stewardship seriously and want to increase your income while also making a planned gift to the church, you can accomplish your goal and keep your estate safe from excessive taxation by the government by considering the CGA option.
If you, as a church representative, are interested in increasing planned giving to the church, promoting the CGA as a beneficial stewardship option while the rate is low, would be a good idea.
This is just one example of how your church stewardship program can actually benefit from a down economy.
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August 31st, 2009 at 1:28 am
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