4Thought Financial Group's Guide to The Different Types of Financial Planning Services
"Financial planning services should provide purely concept-based (not product-based) solutions for your financial objectives, while plan implementation may use a variety of financial services and products, including both traditional products like stocks, bonds, mutual funds and insurance, and newer offerings such as ETFs, SMAs, and robo-advisors."
Charitable giving has certainly changed in 2018. A new tax regime has been passed into law, called the “Tax Cuts and Jobs Act.” The main change that is relevant for charitable giving is whether (or not) you can still itemize your deductions on your income tax return. Why is that relevant? Charitable giving is part of your itemized deductions.
Qualified Charitable Distribution
If you are over age 70 ½, and have an Individual Retirement Account (IRA), per the IRS, you must withdraw a minimum amount each year, called the “Required Minimum Distribution” (RMD). So how is this relevant to charitable giving or itemized deductions?
If you do not itemize, you will not benefit tax-wise (if you have in the past) when you write a check to a charity. In the past, you could offset taxable income (such as that which results from a withdrawal from a Traditional or Rollover IRA) with itemized deductions. If itemizing is no longer applicable based on the new tax law, the withdrawal from the IRA will be taxable with no (charitable) offset.
A possible idea is to have your financial institution write a check directly from your IRA to the qualified charity. The good news is that the withdrawal will not be taxable to you. That’s the point!
You do not get a charitable deduction, but you did not pick up the withdrawal as income and can satisfy (some or all) of your IRA required minimum distributions.
I recently was asked by a client about using this strategy. He realized that he was no longer going to receive a tax benefit from the charitable deduction to his church, so he wanted to have his IRA send the monies directly to his church, monthly. This way, he hit the trifecta! He took care of his monthly donation to the church, did not have to pick up the IRA distribution as taxable income, and he satisfied part of his required minimum distribution.
The maximum the IRS allows for this strategy is $100,000 per year, and it’s only available using IRAs for those individuals over 70 ½.
Donate Appreciated Common Stock
If you have any gains (appreciation) in common stock and you’ve held them for more than one year, upon sale you will pay a long-term capital gain tax. If you donate the stock to a qualified charity and let them sell it, no capital gains tax will be incurred. The result is that more funds can go to the charity to satisfy your charitable giving intentions. This strategy still may make sense even though you no longer may be able to utilize the immediate charitable deduction, because you no longer itemize your deduction.
Donate Life Insurance
If you no longer have the need for life insurance, instead of cancelling the policy (or selling it), you can donate it to a charity. Future donations to the same charity can also count as a charitable contribution (and will allow the charity to keep paying the policy’s premium). If it is a policy with cash value, you may also get an immediate income tax deduction for the cash value.
Donor-Advised Fund (DAF)
This can be set up with a large financial institution. Costs are minimum to set this up, as well as to maintain it. Large donations can be contributed to a Donor-Advised Fund (including appreciated common stock or other marketable securities), and then you can direct them to distribute the funds to a charity. This is called “bundling” your charitable donations, which may enable you to get a larger itemized deduction in the current year. Remember, a married couple over 65 can claim a standard deduction of $26,500 ($24,000 plus $1,250 per person over age 65 as an additional deduction). It is not easy to itemize your deductions when real estate, state and local income/sales taxes are capped at $10,000, and you need to have more than $26,500 to itemize. This is a problem with the new tax law, and may hurt charitable giving.
This can be done via your will or revocable living trust. This was how one of my charities was recently able to receive the funds to build a handicapped bathroom. Some charitable institutions have enabled families to set up endowment funds with a specific directive on how the funds should be annually distributed.
Obviously, each of the above is only a brief summary of the idea and would need to be discussed in further detail with your accountant or tax advisor.
Remember, after you make the donation, you’ll make your mark not only on the charity, but also your family. What a great message for children and grandchildren. Many clients have memorialized loved ones, as well. I am proud to be able to carry on the tradition that my parents have taught me and that I have taught my family.
I hope you find this aspect of giving back and helping others as satisfying as I do.
4Thought Financial Group