Charitable Giving and Financial Planning

By Colleen Gillespie, CTFA, AIF®

Winston Churchill has been quoted as saying “we make a living by what we get, but we make a life by what we give.” Prior to my second 15 plus year career as a financial advisor, I spent 18 years as a nonprofit executive, raising funds for various local organizations. So, I have a strong commitment to charitable giving. As you’ll see in this issue of the Sawston Sentinel, one of the core values of our firm is to give back and serve others. Many of you share this same ideal.

Certainly, one of the benefits of giving is receiving a tax break. However, during my tenure as a nonprofit executive, I can only think of one time that someone gave because of the tax write-off they would get and needed before the years’ end. People give because they care. Favorable tax considerations might come into play on how they give, but my experience was that taxes were never driving whether they would give. That decision came from the heart.

In discussing financial goals, we talk about charitable giving and whether any consideration should be strategized in a plan for larger gifts made once, ongoing, or through an estate gift. It is certainly more gratifying to see the great works of a favored non-profit organization or church while we’re still living! And while there are a number of tools that can be used to give to charity that we can discuss with you, one of the more underutilized options is the Charitable IRA Rollover or Qualified Charitable Donation (QCD). This is especially true since we’ve had such an extended bull market and you may have seen your IRA balance grow significantly.

Congress made charitable gifts from an IRA a permanent option at the end of 2015. This is a distribution from certain IRA accounts made directly to a qualified charitable organization(s). This distribution satisfies the required minimum distribution those age 70½ must make each year. So even if you don’t itemize charitable deductions any longer due to the 2017 Tax Cuts and Jobs Act and take a single or joint standard deduction, using the QCD still offers the following benefits:

–If you are age 70½ and are required to take a distribution from your IRA but really don’t need the money for living expenses or want to pay income taxes on that distribution, you could satisfy the requirement by directing your distribution, up to $100,000 annually to a qualified charity(ies). If your spouse has an IRA, they may also make a distribution up to the maximum amount of $100,000. The firm where your IRA is held will mail a check made payable to the qualified charity(ies) you direct. That’s up to $200,000 annually that a married couple could direct to benefit their favorite charities – all while avoiding paying income taxes on the amount donated! If you don’t have this much to give, you can just direct the full or partial amount of your required distribution through this method.

–Giving through a QCD reduces your adjusted gross income since you’re not realizing additional income from the IRA, which in turn could result in less taxation of your Social Security.

–If you could be subject to either the current federal estate tax limit ($11.4M per person) through 2025, or the much smaller Washington Estate Tax threshold on estates valued at the current amount of $2.193M, directing distributions through a QCD will reduce your estate by the amount contributed to a qualified charity.

–You may be able to make a larger donation than you would normally make from other assets.

The charity will receive the full benefit of your intended gift through this method of giving, rather than if you use taxable accounts to direct your giving. As an example, if you want to give $10,000 to a charity, if you direct a QCD to that charity from your IRA, they will receive a full $10,000. If you give after you receive your required minimum distribution, you will have paid tax on that $10,000, then the charity receives the proceeds, after taxes. It’s a paper shell game, but the point is that in using a QCD, neither you nor the charity pay taxes on your gift.

There are some important things to remember about making a qualified charitable donation. You must be at least age 70½ at the time you direct the distribution; it must be directed to a qualified charity, church, or university; the check must be made payable directly to the charity(ies) by the custodian where your IRA is held and either sent to you, or sent directly to the charities; and the donation must be completed before December 31. When filing your taxes for the year you’ve completed a QCD, you are responsible for noting that your distribution is a qualified charitable donation. Make sure and get a letter from the charity as a receipt for your distribution.

If you want to have a conversation about whether a QCD is a feasible strategy for you, give us a call.

What will your legacy be?