A bond ladder is a strategy for managing a collection of individual bonds or CDs. Under this strategy, the maturities and the timing of interest payments of the fixed-income investments are simultaneously staggered – or laddered – at specific intervals. Each of these bonds represents a different rung on the ladder. The rungs are determined by the amount of investments divided by the number of bonds. Most experts recommend bond ladders with at least five rungs. This requires total investments between $10,000 and $50,000.

For example, an investor who puts $50,000 in five different bonds with a face value of $10,000 each has set up a bond ladder with five rungs. Each rung has a different maturity date. The first rung of bonds matures in one year, the second rung matures in two years, the third rung in three years, the fourth in four years and the fifth in five years. In effect, each rung of bonds reaches maturity at an interval of one year.

The distance between the rungs – that is, the interval of bond maturities – can be set anywhere from every few months to a few years. Bonds, however, are long-term investment vehicles that earn higher yields with time. Making the distance between the rungs longer typically results in better yields. The trade-off is that this exposes the investor to reinvestment risks and lack of access to the funds. Making the distance between the rungs shorter reduces the average return.

Financial experts use bond ladders to generate consistent returns and low risk, and to adjust cash flows according to the investor’s financial objectives. For example, the bond ladder can be set up to function as a source of income during retirement..

By staggering the maturity dates the investor also avoids being locked into one particular bond for a long duration, unprotected from bull and bear bond markets. If the investor poured the full $50,000 into one single bond with a yield of 5 percent for a term of 10 years, he or she wouldn’t be able to capitalize on increasing or decreasing interest rates. The bond ladder approach smoothes out market fluctuations because bonds mature at regular intervals.

A bond ladder also protects the bond portfolio from call risk. Call risk is when a bond issuer takes advantage of the callable bond feature and redeems the issue prior to maturity because of the high rate being paid on the bond. In a bond ladder, there is little chance that all bonds in one portfolio will be called at once because the maturities are staggered.

The bond ladder approach can be used for various fixed-income investment vehicles, including debentures, government bonds, municipal bonds, Treasury bills and certificates of deposit. The “ideal” bond for this strategy depends on the investment objectives and the investor’s preference.

Americans lead the world in charitable giving – twice as much as the next most charitable country, according to a 2006 Charities Aid Foundation report. In 2006, Americans set a new record in philanthropic contributions, with an estimated $295 billion. A large percentage of that comes from individual donors.

Experts say the practice of voluntary giving has positive effects on the giver’s health, happiness and even personal wealth.

A direct effect on wealth is, of course, the tax deduction. But only certain donations qualify.

The tax benefits are applicable only to contributions made to qualified organizations and are not set aside for use by a specific person. Legitimate public charities are mostly federally approved 501(c)(3) organizations. Generally, they include religious, educational, scientific, literary and charitable organizations. Certain organizations that foster national or international amateur sports competition may also qualify. The IRS has on its Web site a list of organizations eligible to receive tax-deductible charitable contributions.

Generally, deductions for monetary contributions are limited to 50 percent of adjusted gross income (AGI). For example, the deduction limit for an AGI of $100,000 is $50,000 for that year. In some cases, 20 percent and 30 percent limits may apply to gifts of property that have appreciated in value and are held for more than one year. Any amount in excess of the applicable limitation to charity in one year can be carried over for the next five years.

Charitable donations made by credit card are deductible in the year they are charged to the credit card, even if the giver pays the credit card company in a later year. Donations made through a pay-by-phone bank account are not deductible until the payment date is shown on the bank statement.

Different tax rules apply for cash contributions where the donor receives a financial or economic benefit in return, such as purchasing a ticket for a dinner dance at a church or for a fundraising auction conducted by a charity.

There are many ways to contribute to a qualified cause. These may include charitable gift annuities, gifts in kind, volunteer work and endowments. While some of these ways may not provide direct tax benefits, the IRS may allow indirect write-offs. Consult with a tax advisor about the many ways Uncle Sam repays good deeds.

To comply with IRS requirements, please be advised that, unless otherwise stated by the sender, any tax advice contained on this web-site or in e-mails or attachments sent from this website or from VERPA Tax is not intended or written to be used, and cannot be used, by the recipient to avoid any federal tax penalty that may be imposed on the recipient, or to promote, market or recommend to another any referenced entity, investment plan or arrangement.

The typical employee welcomes the open enrollment season with as much enthusiasm as he or she would a documentary chronicling the life cycle of a garden slug. Too many employees – 60 percent, according to a survey conducted by Hewitt Associates – don’t bother to study their options and do nothing at all during this time. This forces their employers to sign them up for what they had the previous year. This year, however, may be a little different.

The number of large employers that will introduce consumer-directed health plans (CDHPs) this year went up sharply to 20 percent, from 14 percent last year, according to Mercer, a firm specializing in employee benefits. In fact, some large-employer clients that had previously considered launching CDHPs within the next three to five years will implement them in 2010, says a consultant with Towers Perrin.

Like it or not, it’s time to grasp the basics of CDHPs and Health Savings Accounts (HSAs).

CDHPs are a broad range of health plans that allow their members to use personal HSAs to directly pay qualified medical expenses. The idea behind a CDHP is that employees will act more judiciously, like consumers, comparing health care quality and costs, and negotiating lower prices. Because plan participants are spending their own dollars for health care, it also discourages unnecessary utilization such as emergency room visits for nonemergency care.

An HSA is the most common account under a CDHP, which may also offer Flexible Spending Accounts (FSAs) and Health Reimbursement Accounts (HRAs).

The HSA is set up in conjunction with a high-deductible health plan (HDHP). Members must be enrolled in an HDHP in order to set up an HSA. Annual HSA contributions are used by individual and covered family members to pay for the cost of the deductible, out-of-pocket expenses and any other qualified expenses. In 2010, employees will be able to set aside as much as $3,050 in an HSA for individual coverage and $6,150 for family plans. Employees over age 55 can also make increased payments until they reach Medicare eligibility.

The funds contributed by the employer and the employee to the HSA are not subject to federal income tax at the time of deposit. The account is owned by the employee and can be used to pay for qualified medical expenses at any time without federal tax liability. HSA funds not used within a calendar year stay in the account, where they earn interest and can be accessed for future use.

The legal and tax information contained in these articles is merely a summary of our understanding and interpretation of some current provisions of tax law and is not exhaustive. Consult your legal or tax advisor for advice concerning your particular circumstances.