Reserve fund guidelines

We need to know how much detail is required to satisfy out tax liability so we can identify our $21K CD account as our reserve fund. Our accountant is telling us we have too much money in our account but our income from the dues (only $395/year) is nearly equal to our operating expenses for the past 3 years (we are 7 years old now). Our HOA (Maryland eastern shore) does not own any structures other than our entrance sign, but we believe this money should be set aside for potential long term repairs of our storm water drainage infrastructure - (this is the only large expense we believe we will ever have because the County owns our roads). We would prefer not to spend money on a study if it's not required.
Thank you

Buddy,

Do your docs define what your Reserves cover? Most do. Give 'em a glance.

Buddy,

First of all I would be looking for another accountant as this one is not giving you good advice. I know of no restrictions on how much an HOA can have in a reserve fund. My assn has near 1 Million in ours and I'm sure many others have much more than that. The assn will only have to pay taxes on the interest earned on the reserve account.

The board is correct in thinking that money should be set aside to cover long range repairs, etc. It would be very wise to have a reserve study done by a professional company that specializes in reserve studies. The reserve money should be put into a reserve account (some sort of savings account) and the monies should only be used for those items specifically identified in the reserve study. Most state laws and even most assn docs do not even mention reserve accounts, so the board can do whatever they think is appropriate. However, if you do have state laws and/or provisions in your gov doc addressing this, then you will have to do what is stated there. A reserve study many not be required; however, it really is the best way to go. Usually the reserve study is updated every 3-4 years.

Our documents do not out line what the Reserves should cover (the Reserve study does that).I've never seen documents other than a study that do (I'm not saying they don't exist, but wow to the phrase all inclusive). I am thinking here that manybe the accountant is stating that the ONE CD for 21k is too much as far as taxes are concerned. Is he suggesting that the CD be split? Do you have an accountant who is familiar with Non Profit Associations? I still think maybe that's what they are suggesting (splitting the 1 CD account or tax reasons).

Janice