Pooled Income Fund: What It Is and How It Works

A pooled income fund is a type of investment vehicle that allows multiple investors to pool their money together to invest in a diversified portfolio of stocks, bonds, and other securities.

This structure allows investors to benefit from economies of scale and lower fees, as the costs of managing the fund are spread across the entire pool of assets.

Investors can contribute a minimum amount of money to the fund, which is then invested in a variety of assets to generate income.

The fund is managed by a professional investment manager who is responsible for making investment decisions and ensuring that the fund is diversified and aligned with the investors' goals and risk tolerance.

A pooled income fund is a type of charitable trust that pools donations together for investing purposes.

It's a mutual fund that invests gifts from multiple donors, distributing income to both the participants and named beneficiaries according to their share of the fund.

Donors choose the beneficiaries to receive quarterly payments for life, and upon their death, the assets are transferred to those beneficiaries.

The fund's income distribution amounts vary depending on the performance of the investments and IRS life expectancy tables.

By donating to a pooled income fund, you can claim a current tax deduction and avoid paying capital gains tax on appreciated assets.

You can also ensure a perpetual income stream for yourself or others, making it a great option for those looking to support a good cause.

On a similar theme: Life Insurance Super Fund

A pooled income fund offers several benefits and features that make it an attractive option for charitable giving. You can contribute appreciated assets to the fund, reducing or avoiding taxes by providing income and transfer tax deductions at the time of contribution.

The fund allows modest investors to create giving opportunities, and you can designate the use of the funds by a charitable organization after expiration of the income interest. This gives you peace of mind knowing that your gift will be used for a good cause.

Assets contributed to the fund qualify for an immediate income-tax deduction, and the amount of the deduction depends on the gift's fair market value, the beneficiary or beneficiaries' age, and the fund's rate of return. The fair market value of the assets at the time of the transfer is also taken into account.

The trustee of the pooled income fund must distribute income within 65 days after the close of the taxable year in which the income is earned. This ensures that you receive your income distributions in a timely manner.

Here are some key benefits and features of a pooled income fund:

The frequency of income distributions from the pooled income fund is usually quarterly or annually, although some funds allow you to choose a payment frequency that suits your needs. The amount of income you receive varies and depends on the performance of the investments held by the trust.

You can contribute any liquid asset to a pooled income fund. Commonly used assets include cash, stocks, and mutual funds.

Some pooled income funds may also permit donations of other types of assets, such as certain restricted securities or privately held stocks, noncash assets like life insurance, tangible property like fine art, automobiles, or real estate, tax-exempt securities, or even Bitcoin.

Here are some examples of acceptable contributions to a pooled income fund:

When you're considering contributing to a pooled income fund, you'll want to know what types of assets are acceptable. Generally, you can contribute any liquid asset to a pooled income fund.

Commonly used assets include cash, stocks, and mutual funds. These are often the easiest to transfer and convert into the funds.

Some pooled income funds may also permit donations of other types of assets. These less common assets include certain restricted securities or privately held stocks, noncash assets such as life insurance, and tangible property like fine art, automobiles, or real estate.

Tax-exempt securities and Bitcoin are also considered acceptable contributions by some pooled income funds.

Here's a quick rundown of the most common acceptable contributions:

A pooled income fund may be the right tool for donors who have a desire to benefit charity, but may only have a modest investment to contribute.

Donors to a pooled income fund must recognize that there can be fluctuations in the net income of the fund.

You can use the Find Your Fit Questionnaire to discover if a pooled income fund is right for you.

Related reading: Pooled Funds

When investing in a pooled income fund, donors have limited control over the investment strategy.

Donors generally have limited choices in investment strategy, which can be a drawback for those who want to tailor their giving to specific goals or values.

Income from a pooled income fund may fluctuate due to market changes, affecting the value of the assets in the fund.

Assets in the fund are not available to support charities during the donor's lifetime, unless alternative arrangements are made.

Contributions to a pooled income fund are irrevocable, meaning donors cannot change their minds or withdraw their funds after making a donation.

Expand your knowledge: Non-mainstream Pooled Investment Vehicle