As we make our way through the holiday season, many of us reflect on the causes that matter most and how we can make a meaningful impact. For those nearing retirement, charitable giving can be especially rewarding, combining personal values with financial benefits.
However, navigating the various ways to give strategically can be complex, especially when aiming to maximize tax advantages and create a lasting legacy.
To support affluent Iowans nearing retirement, Johnson Wealth and Income Management has assembled essential charitable giving tips to help you make a greater impact this holiday season.
Define Your Charitable Goals and Vision
Before you start giving, it’s helpful to clarify your charitable goals. Ask yourself:
- Which causes align with your values and priorities?
- Are you interested in supporting immediate needs, or are you more focused on long-term charitable goals?
- Do you wish to create a legacy for your family or community?
Knowing the purpose behind your giving will make it easier to select methods and organizations that best suit your intentions, allowing you to give in ways that are both impactful and meaningful. Now, let’s dive into some charitable giving strategies.
1. Use Donor-Advised Funds (DAFs) for Flexibility and Growth
A donor-advised fund (DAF) allows you to contribute to a fund and receive an immediate tax deduction while giving you the flexibility to recommend grants to specific charities over time. DAFs have become increasingly popular due to their ease of use and potential tax benefits. With a DAF, you can contribute assets to the fund and benefit from any potential growth, allowing you to increase your donations in the future while remaining engaged in your giving decisions.
2. Consider Qualified Charitable Distributions (QCDs) from Your IRA
For those over 70½, a qualified charitable distribution (QCD) allows you to transfer up to $100,000 annually from your IRA directly to a qualified charity. QCDs can be particularly beneficial because they count toward your required minimum distribution (RMD) but do not increase your taxable income, making them a tax-efficient way to support causes you care about.
QCDs have become an effective giving tool for retirees, providing a straightforward way to support charities while meeting RMD obligations and helping keep taxable income down.
3. Explore Charitable Remainder Trusts (CRTs)
A charitable remainder trust (CRT) is another option to consider if you’re interested in providing an income stream for yourself or loved ones while ultimately benefiting a charity. CRTs allow you to donate assets to a trust, generating income over a set period, with the remainder going to the charity of your choice.
In addition to supporting long-term financial goals, CRTs can also be a valuable part of estate planning, helping reduce estate taxes. By creating a CRT, you’re setting up a charitable gift that will live on, reflecting your values and leaving a positive impact.
4. Maximize Your Giving with Appreciated Assets
Donating appreciated assets such as stocks, real estate, or other investments can be an advantageous way to give. By donating appreciated assets instead of selling them, you can help avoid capital gains taxes on the increase in value while potentially receiving a tax deduction based on the current market value of the assets.
According to Fidelity Charitable, donors who give appreciated securities rather than cash may see tax savings increase by up to 20%. This option can be particularly effective for those nearing retirement who have built up significant investment gains over the years.
5. Engage Family Members in Charitable Planning
For those who want to create a family legacy, involving children and grandchildren in charitable giving can be a powerful way to instill values, pass on financial knowledge, and support meaningful causes as a family. By creating a charitable giving plan that includes family members, you’re providing future generations with the opportunity to learn the importance of generosity and financial responsibility.
Establishing a family fund or holding regular discussions about causes to support can foster deeper family connections and create a shared sense of purpose.
6. Understand the Year-End Tax Implications and Giving Limits
Each year, it’s essential to keep tax rules and giving limits in mind when planning your charitable contributions. In 2024, individuals can gift up to $17,000 per recipient without triggering gift taxes (or $34,000 for married couples). Additionally, there are limits to charitable deductions based on the type of donation: for cash contributions, the IRS allows deductions up to 60% of adjusted gross income (AGI), while donations of appreciated assets are capped at 30%.
Staying informed on these limits can help you maximize the tax advantages of charitable giving, allowing you to make a greater impact while enjoying potential financial benefits.
7. Verify the Credibility of Charitable Organizations
With an increase in online giving platforms, verifying the legitimacy of charities is critical to help ensure that your donations are going to reputable organizations.
Websites like Charity Navigator, GuideStar, and BBB Wise Giving Alliance can help you research charities, assess financial health, and ensure the organization aligns with your giving goals.
A quick review of a charity’s reputation and transparency can give you peace of mind, knowing that your contributions will be used effectively.
How Johnson Wealth and Income Management Can Help
At Johnson Wealth and Income Management, we understand that charitable giving is an important part of both financial planning and personal fulfillment for many retirees and pre-retirees. Our team is here to support you in making informed, strategic decisions that reflect your values while aligning with your financial goals. Here’s how we can assist you with holiday and year-round giving:
- Personalized Charitable Giving Strategies: We help you create a giving plan that aligns with your financial situation, long-term goals, and charitable interests. Whether you’re interested in maximizing tax benefits, establishing a donor-advised fund, or creating a charitable remainder trust, we’ll help guide you through the options that best fit your needs.
- Tax-Efficient Giving Options: Understanding the tax implications of charitable donations can be complex, but our team can help you navigate options like qualified charitable distributions and donations of appreciated assets to help ensure you receive the maximum benefits from your giving.
- Education and Family Involvement: We support clients in involving family members in charitable decisions, helping create a shared vision for giving, and instilling philanthropic values in younger generations. Whether through establishing family charitable funds or providing financial education, we’ll help you create a legacy of generosity. Our educational resources include:
Final Thoughts
As you consider your charitable goals this holiday season, remember that giving can be both rewarding and strategic. By planning your charitable contributions with Johnson Wealth and Income Management, you can make a difference in your community while benefiting from tax advantages and the satisfaction of knowing you’re helping those in need.
Let us guide you in creating a charitable giving strategy that aligns with your financial goals and personal values, helping you leave a legacy that you—and those who benefit from your generosity—will cherish for years to come.
Reach out today to schedule a complimentary consultation.
FAQS
1. Can I set up a recurring donation in retirement, and how does it benefit me?
Yes, many charities offer the option to set up recurring donations, which can be a convenient way to support a cause consistently. Recurring donations can help retirees manage their charitable budget by spreading contributions over the year rather than giving a lump sum. This approach also benefits the charity by providing a steady stream of support and can simplify tax documentation, as you’ll have clear, regular records of your donations.
2. Is it possible to make a charitable gift through an estate plan?
Yes, incorporating charitable gifts into your estate plan is a popular option for retirees who wish to leave a legacy. You can designate a specific dollar amount, percentage, or asset (such as real estate or stock) to be donated to a charity upon your passing. This can potentially be achieved through a will, a charitable remainder trust, or by naming a charity as a beneficiary of an IRA, life insurance policy, or other retirement account.
3. How can I help ensure my charitable gifts will be used as I intend?
If you have specific intentions for your charitable gift—such as funding a scholarship, supporting a particular program, or helping a specific community—you can create a restricted gift by specifying your wishes in a letter of intent or agreement with the charity. Discuss your goals with the charity beforehand to help ensure they understand and can honor your wishes. In some cases, establishing a donor-advised fund (DAF) or a charitable trust can provide additional control over how your contributions are used.
4. What is a charitable gift annuity, and how does it work for retirees?
A charitable gift annuity allows you to donate assets to a charity in exchange for a lifetime income stream. The charity invests the assets, and in return, you receive regular payments. When you pass away, the remaining assets go to the charity. Charitable gift annuities can be a good option for retirees who want to support a cause while maintaining a reliable income. Additionally, they offer potential tax benefits, including a partial charitable deduction and tax-free income portions.
5. How can I balance charitable giving with my retirement income needs?
Balancing giving with income needs is crucial for retirees. Before making large or recurring donations, it’s wise to work with a financial advisor to assess how charitable giving fits into your retirement budget and long-term goals. Setting up a charitable plan, using vehicles like donor-advised funds or charitable trusts, and understanding tax benefits can help ensure that you can give generously while maintaining financial security in retirement.
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