Charitable Giving in Retirement: Making an Impact While Maximizing Tax Benefits
Introduction
Retirement is not just a time to relax and enjoy the fruits of your labor; it's also an opportunity to give back. Many retirees find fulfillment in charitable giving, and the great news is that being generous can also benefit you from a tax standpoint. Let's explore how you can make an impact through charitable donations while also reaping some tax benefits.
The Basics
When you donate to a qualified charitable organization, you can generally write off the donation as an itemized deduction on your tax return. But there are other ways to give that can offer more tax advantages, such as donating appreciated assets or making a Qualified Charitable Distribution (QCD) from your IRA.
The Trade-Offs
While the tax benefits can be appealing, it’s important to first ensure that you’re financially stable enough to give. Consult with your financial planner and ask him or her to run a retirement projection with your particular situation in mind. It's crucial to balance your charitable ambitions with your own financial security. Make sure your generosity doesn't compromise your retirement lifestyle.
Case Study: Steve & Ellen
Steve & Ellen, both in their late 60s, are comfortably retired with a sizable nest egg and a heart for giving. They have a variety of assets including a joint account and IRAs. Instead of writing a check to their church, they decide to donate shares of a stock holding in their joint brokerage account that they purchased years ago. Their cost basis is only $10,000, and the current market value is $30,000.
They avoid paying capital gains tax on the $20,000 appreciation, and they still get to claim the full $30,000 as a charitable deduction. This move not only supports their church but also allows for a more tax-efficient withdrawal strategy from their other assets.
Considerations
Donation Type: Cash is straightforward, but consider donating appreciated assets to maximize tax benefits.
Tax Status: Make sure the organization you're donating to is a qualified charity for tax purposes.
Your Tax Profile: Tax deductions from donations made by cash are treated differently than tax deductions from donations made by appreciated long-term gain property. Consult with your tax advisor about this if you plan to donate appreciated stock to charity.
RMD and QCD: If you're over the age of 70 & 1/2, you can make a Qualified Charitable Distribution from your IRA without it being counted as taxable income. If you’re of the age to be subject to Required Minimum Distributions from your IRA, a QCD might help you avoid tax. Consult with your tax advisor on this strategy as well.
Donor-Advised Funds: These allow you to make a charitable contribution, get an immediate tax deduction, and then recommend grants to charities over time.
Estate Planning: Consider bequests, charitable trusts, or naming a charity as a beneficiary in your will or retirement accounts.
Conclusion
Charitable giving in retirement can offer emotional fulfillment and tangible financial benefits. Whether it's a one-time donation or a long-term giving strategy, make sure you're maximizing the impact for both you and the causes you care about. If you're interested in integrating charitable giving into your retirement planning, a chat with a financial advisor could be a good next step.
Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. This website and its associated links offer news, commentary, and generalized research, not personalized investment advice. This website is for informational purposes only and does not constitute a complete description of our investment services or performance. Nothing on this website should be interpreted to state or imply that past results are an indication of future. All investments involve risk and unless otherwise stated, are not guaranteed. Be sure to consult with a tax professional before implementing any investment strategy.
This should not be construed as tax advice. You should always consult with your tax professional with regard to specific tax questions and obligations.
