Charitable giving presents high-net-worth investors with a distinctive opportunity to impact organizations and causes close to their hearts.
Giving Tuesday gives retirees a prime opportunity to amplify the effect of their charitable contributions. High-net-worth individuals (HNWI) closing in on retirement can capitalize on strategies like qualified charitable distributions from IRAs and the potential to itemize deductions driven by higher healthcare expenses so that their generosity receives the recognition it deserves.
However, navigating the world of charitable giving can be complex, especially when substantial assets are involved. In this blog, we’ll explore some valuable tips for high-net-worth investors on Giving Tuesday and discuss how a fiduciary advisor can be essential in your philanthropic endeavors. Here’s what you need to know.
Define Your Philanthropic Goals
Before making any charitable contributions, it’s crucial to define your philanthropic goals. Ask yourself what causes or organizations align with your values and interests. Consider the long-term impact you hope to achieve through your giving. High-net-worth investors often have the capacity to make transformative contributions, so clarifying your objectives will help you direct your resources effectively.
Creating a strategic giving plan is essential for high-net-worth individuals. This plan should outline your charitable goals, the amount you’re willing to donate, and a timeline for your contributions. Let’s look at some tips to help you with your charitable giving this Giving Tuesday.
Use Qualified Charitable Distributions
One valuable strategy you can employ to help maximize the impact of your charitable giving while optimizing financial planning is Qualified Charitable Distributions (QCDs). Qualified Charitable Distributions are a tax-efficient way for individuals aged 70½ or older to donate funds from their Retirement Accounts (IRAs) directly to eligible charitable organizations. They can exclude from gross income up to $100,000 of these QCDs. For a married couple, if both spouses are age 70½ or over when the distributions are made and both have IRAs, each spouse can exclude up to $100,000 for a total of up to $200,000 per year. Investors can enjoy several advantages by using a QCD:
- Tax Savings: QCDs are not included in the donor’s taxable income. This means the distribution is not subject to income tax, offering potential tax savings.
- Satisfy Required Minimum Distributions (RMDs): For those subject to required minimum distributions from their IRAs, QCDs can fulfill this obligation while supporting charitable causes. This can be especially beneficial for high-net-worth retirees who may not need the full amount of their RMDs for living expenses.
- Maximized Impact: QCDs allow investors to contribute directly to their chosen charities, providing that the entire amount goes to the cause without tax deductions or administrative fees, reducing the donation’s impact.
- Reduction in Adjusted Gross Income (AGI): Lowering AGI can have various financial planning benefits, such as potentially reducing Medicare premiums, minimizing the impact of the Net Investment Income Tax (NIIT), and making it easier to claim other deductions and credits.
It’s essential for investors considering QCDs to be aware of the IRS rules and requirements associated with this strategy. These rules can change over time, so consulting with a Fiduciary advisor can help you stay compliant and maximize the benefits of Qualified Charitable Distributions.
Explore Different Giving Methods
High-net-worth investors can access various giving methods, each with advantages and considerations. With today’s higher standard deduction thresholds and limits on deductible state and local taxes, many retirees are no longer itemizing their tax returns. Consequently, they may not be receiving recognition for their charitable contributions.
Nevertheless, retirees who typically wouldn’t itemize deductions can employ a strategy known as “bunching” to consolidate other deductions in the year they make substantial charitable donations. This strategy helps retirees have a more significant influence through their charitable donations while also helping them gain tax deductions. Your Fiduciary can provide insights into the most tax-efficient and effective giving vehicles for your specific situation.
Stay Informed About Tax Implications
High-net-worth investors seeking tax-efficient ways to support their favorite charitable causes can consider donating highly appreciated assets from their taxable accounts. This approach allows individuals to help leverage the tax benefits associated with charitable giving while helping to optimize their financial position.
When you donate appreciated assets, you can avoid paying capital gains tax on the appreciated value. This means you can donate the asset’s full market value to the charity rather than sell it first and then donate the after-tax proceeds. Donating highly appreciated assets can also be a smart way to rebalance your investment portfolio. If you have a substantial portion of your wealth tied up in a single asset, such as a highly appreciated stock, donating it can help you diversify your investments without incurring capital gains taxes.
However, as tax laws and regulations can be complex and subject to change, working with a Fiduciary can help you stay informed and make the best decision regarding charitable giving and tax planning.
Evaluate Charities Diligently
It’s crucial to recognize that not all charitable organizations are alike. High-net-worth investors should engage in careful due diligence to help guarantee that their donations support reputable and impactful charities. To make informed choices:
- Research: Take the time to research charitable organizations thoroughly. Investigate their missions, track records, and reputations in the philanthropic sector.
- Financial Analysis: Review the financial statements of these organizations to ensure transparency and financial stability. This step helps confirm that your contributions are utilized efficiently.
- Impact Evaluation: Assess the actual impact of the charity’s work. Look for measurable outcomes and evidence of their effectiveness in achieving their mission.
Incorporating your family into your philanthropic endeavors can be a deeply rewarding experience. Additionally, it provides an opportunity to impart the values of generosity and giving to the next generation. Consider establishing a family-giving plan and involving your children or grandchildren in decision-making. This fosters a sense of shared purpose and helps ensure your family’s philanthropic legacy continues to make a positive difference in the world.
How a Fiduciary Advisor Can Help
A Fiduciary advisor is crucial in assisting high-net-worth investors in their charitable giving journey. At Johnson Wealth and Income Management, we help clients prepare for retirement through a series of strategies, helping to ensure the best outcome tailored to your situation. Some of the areas that we provide advisory services on include:
- Year-round tax planning and consulting
- Income tax compliance
- Wealth planning, including estate and gift tax and charitable giving
- Family trusts
- Retirement planning and more
Last Thoughts
Once you’ve identified your goals and priorities for giving, Johnson Wealth and Income Management will help you create a charitable and personal giving strategy that fits your overall financial goals.
If you are overwhelmed by the ins and outs of Charitable Giving this year-end, let us help you optimize your contributions, provide potential tax benefits that reflect your values, and help leave the kind of long-term legacy you want to pass down for generations to come.
Giving Tuesday presents an excellent opportunity for high-net-worth investors to make a difference in the world. Contact us today to get started.
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