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February 13, 2003
Calvert Foundation Offers Community Investment in Self-Directed IRAs
    by William Baue

The Calvert Foundation has partnered with PENSCO Trust Company to offer Calvert Community Investment Notes for use in self-directed individual retirement accounts.

Socially responsible investors have not been able to allocate any part of their individual retirement accounts (IRAs) to community investing--until recently. This month, the Calvert Social Investment Foundation, the nonprofit arm of the mutual fund company Calvert Group, established a mechanism for investing self-directed IRAs in Calvert Community Investment (CCI) Notes.

"Average investors have most of their money in retirement vehicles," said Calvert Foundation Senior Associate Elizabeth Glenshaw. "If we can establish a trend, then we can leverage a lot of retirement dollars to support community development. I'm hoping it's a template that's infectious."

IRA investments offer the benefit of exempting interest, dividends, and profits from taxation until the time of withdrawal, which maximizes the amount of money working in the present. Self-directed IRAs allow investors to choose, either by themselves or in conjunction with their investment advisers, how to allocate their retirement funds.

CCI Notes support disadvantaged communities throughout the country and the world by funding affordable housing, small and micro businesses, and community services. These social returns often counterbalance the financial returns, which tend to be slightly under market rate. Because of the below market rate returns, government regulations have prohibited community investment through IRAs.

"Community investment is considered a non-standard type of asset," Ms. Glenshaw told "We had to make sure that the community investing didn't have charitable intent."

Calvert Foundation self-directed IRAs guarantee a three percent return on a rolling one-year basis. In the context of the bear market of the past three years, when many equity investments have yielded negative returns, a three percent yield hardly seems like charity.

"We're giving the best investment return we can within this investment class," said Ms. Glenshaw.

Through a discussion on a community development banking listserv, the Calvert Foundation was able to identify New Hampshire-based PENSCO Trust Company as the perfect custodian for community investment through self-directed IRAs.

"PENSCO was so willing to work with us; that was half of it," explained Ms. Glenshaw. "The other half of it was their sound organization, their sole specialization in self-directed IRAs, and their passion for this work."

The self-directed IRAs allow for a large degree of flexibility. A whole spectrum of IRAs is available, including the traditional, Roth, and rollover IRAs. Roth IRAs allow investors to contribute after-tax dollars that are tax-exempt upon withdrawal, and rollover IRAs allow investors who are changing employers to roll existing 401(k) retirement savings into IRAs.

Also, investors can choose one of eight regions in the U.S. for their community investments, or they can direct their community investment allocations to the international arena. The Calvert Foundation supports 150 community development financial institutions (CDFIs) worldwide.

"The idea of the targeting is to be able to direct the money to your back yard," said Ms. Glenshaw.

These advantages do have a cost, however. The set-up cost is $50, and there is an additional annual fee of 30 basis points.

"I always thank the initial investors for being pioneers," said Ms. Glenshaw. "My hope is that if enough of these pioneers step forward, then we can come back and reduce the costs."


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