When giving comes from a place of generosity and appreciation, it’s easy to skip over considering the best way to make your donation. After all, giving money is a simple transaction, right? While in the end, handing over a check to your favorite organization is a simple transfer of money, there are other options to ensure you maximize the amount you’re able to give.

Here are a few common questions retirees have regarding charitable donations:

Can I make charitable donations from my retirement account?
Can I donate my Required Minimum Distributions (RMD) to charity?
Can I offset capital gains taxes by making a charitable donation?

If similar topics have crossed your mind, then you’re already thinking along the right track. We encourage philanthropists to consider three parties when giving:

You — As the giver, take time to consider your options such as where the funds will come from, how often you’d like to donate, and how the amount will affect your budget.
The organization — Is the charity worthy? Take time to understand what happens with your donations to verify the organization's values align with your intentions in giving.
Uncle Sam — You have to consider taxes on nearly all financial transactions and charitable donations are no different. Learn how to minimize the amount that lands in Uncle Sam’s pocket.

Let’s properly prioritize you, your charity of choice, and Uncle Sam with ways to be a tax-efficient giver in 2022:

Turning Your RMDs into Charitable Gifts

Turn your Required Minimum Distribution (RMD) into a charitable gift through a Qualified Charitable Distribution (QCD). A QCD is a direct transfer from your Traditional IRA to a qualified charity. A standard RMD is taxable and considered part of your adjusted gross income, by conducting a QCD instead, you’re negating the tax burden associated with an RMD.

By making a Qualified Charitable Distribution, the withdrawal does not hit your gross income, reducing the amount you owe in income tax for the year.
Lowering your gross income may help you avoid higher Medicare premiums.
You can realize a tax benefit without itemizing.

You must be 70 ½ to make a QCD. Keep in mind, the IRS states Required Minimum Distributions are necessary from your Traditional IRA and 401k when you reach age 72. This is a recent change, as RMDs used to also start at age 70 ½. Utilizing your Required Minimum Distribution to make a Qualified Charitable Distribution is one option you have when determining what to do with the funds, but there are a few stipulations.

As the taxpayer, you’re allowed to gift up to $100,000 from your IRA in a QCD each year once you reach 70 ½.
If married, and each of you is over the age of 70 ½, you can gift $200,000($100,000 from each of your IRAs).
While these donation caps exist, there are no limitations when it comes to the number of charities you can support.

Donor Advised Funds

Imagine having an account set aside just for charitable giving where the funds are invested so your gift has the opportunity to grow — in a nutshell, this describes a Donor Advised Fund (DAF). The contributions must support public charities; which you'll see referenced as a 501(c)(3).

It’s important to know that contributions to a DAF are non-revocable, even if they have not been distributed to a specific charitable organization. Your contributions are tax-deductible and the funds can grow tax-free. As the contributor, you determine how the funds are invested and make the call as to when funds are distributed to the charity of your choosing.

As the account holder you retain the power to change which organization(s) are the recipient of the funds. It’s important to remember there may be management fees, minimum starting donations, and like any investment — the value may go down if the stock market turns.

A DAF may be selected by someone looking to leave a legacy and have the funds set aside for giving upon their passing. The tax benefit and flexibility that come with using a Donor Advised Fund are also noteworthy benefits.

Consult an Accountant before Giving

Charitable giving looks different for everyone. Some give $25 to multiple charities in a given year, others make a more sizable donation to one organization, and others prefer their donation to carry on their legacy by giving a gift after passing.

However you choose to give, don’t forget to discuss charitable giving with a CPA to ensure you follow proper tax law procedures and to make sure your gift does not adversely impact your finances.

At IWM, we’re passionate about supporting charities that benefit children and public servants who look out for our local communities. Camp Barnes is just one example of a 501(c)(3) we support. We’d love to learn more about your giving goals and the organizations you find worthy.

For more information on how you can maximize your charitable donations as a retiree, reach out to an IWM Financial Advisor today:

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About Integrated Wealth Management

Integrated Wealth Management is owned by Burt Hutchinson, CPA, CFP®. We’re a CPA-led organization, meaning we’re here to handle your complex tax scenarios and provide cost-saving insight related to your financial plan.

We’re here to guide you through the 3 stages of retirement:

Uncertainty Stage: When you are within 10 years of retirement and have questions about how to make it work
Stability Stage: When you have reached the financial milestone to retire comfortably and confidently
Reflection Stage: When you are looking to leave a legacy

We are also here to provide experienced, empathetic support during times of loss, such as the death of a life partner. You need confidence and a sense of security to enjoy retirement. As fiduciaries with a fee-only structure, we never receive commissions. Free of ulterior motives, you can be sure we’re focused on your goals.

Continued Readings:

Sources:

“Donor-advised Funds.” IRS, 10, September, 2022, https://www.irs.gov/charities-non-profits/charitable-organizations/donor-advised-funds