The holiday season is a great time to focus on giving back, so have you considered strategies to maximize the impact of your charitable donations? Pure’s Senior Financial Advisor, Allison Alley, CFP®, AIF®, shares six practical steps to help you plan your giving to ensure your contributions make a meaningful difference to the causes and organizations you care about most.
The 6 steps include:
- Define charitable goals
- Assess your financial situation
- Choose the appropriate method of gifting for you
- Look to maximize tax benefits
- Involve family members and consider estate planning
- Vet charities
Transcript
If there are causes you care about and you want to donate to, having a strategy can help you boost the impact of your donations. Let’s talk about six steps to plan your charitable giving.
- First and foremost, you’re going to want to define your charitable goals. What are the causes that are most important to you? What organizations or groups align with your values? What kind of change do you want to help create in your community or greater area? Do you want to give back or help people less fortunate than you? Maybe it’s education or arts that you’re most passionate about. Giving to causes close to your heart not only feels good, but it could help you engage in ongoing long-term giving.
- Before you start gifting, you’ll want to fully assess your financial situation. How much giving actually fits into your overall financial plan? If you haven’t already met with your financial planner to determine this, start there. Then you can start laying out an annual gifting plan, which can be adjusted as your situation changes over time. If you have a higher income-earning year, to get a larger tax deduction, it may make sense to make a larger contribution or to “group” several years’ worth of giving and fund something like a donor advised fund, which we’ll talk more about.
- Choose the appropriate method of gifting for you. You can gift directly. Direct donations are very convenient and straightforward. You can give cash or assets directly to an organization. You can look into donor advised funds, these can be set-up to really maximize the tax benefits of your donation. You can gift an amount to the fund, choose how the money is invested, and then issue grants from the fund to the charities of your choosing. Because you can invest the money before it’s directed to your chosen organizations, the donor advised fund gives you the potential to gift more, over time, than you’ve actually contributed to the fund. There are also private foundations that can be established if you’re looking to make a larger charitable donation. There are costs associated with creating these, but they can give you greater control over investing the money and the distributions allowed. There are also significant compliance and reporting requirements and require an attorney and a CPA, so again, they really only make sense if you’re giving away a sizeable amount.
- Look to maximize tax benefits. Charitable giving can offer tax advantages in addition to supporting causes you care about. In order to get a tax benefit for your donation, you have to itemize your deductions. If you won’t have enough itemized deductions to benefit from this, you could consider grouping a couple of years of donations in one year to get a larger deduction. If you’re over age 70 ½ you can gift directly from your IRA. It’s called a Qualified Charitable Distribution (QCD). If you do this, you don’t actually need to itemize in order to get a tax benefit. And then once you’re over the age of 73, QCDs also help meet your required minimum distributions (RMDs). You could also gift appreciated stock. You get the deduction for the full value of the asset donated and you also avoid paying the capital gains tax on the appreciation of the asset gifted. There are some limits to this benefit, so again you’ll want to work with your financial advisor to make sure you’re maximizing the potential tax savings.
- Involve family members and consider your estate planning. It’s important to communicate with your family members about your charitable priorities. Sharing your values with your kids can help instill those values in the next generation and create a family legacy that will continue after you’re gone. Both donor advised funds and private foundations also offer ways to include family members in the ongoing gifting decisions. You can build gifting strategy into your estate planning as well. You may want to name charities in your will or even set up a charitable trust. A charitable trust allows you to benefit from the value of an asset during your lifetime, but leaves the remaining value of the asset to the charity upon your passing. You get a tax deduction now for a portion of the value of the asset when you set up the Trust.
- Vet your charities! There are over a million American non-profits, so it’s important to vet charities before you donate. You can learn about an organization’s financials by doing a tax-exempt organization search on the IRS website. In addition, charity rating organizations like Guidestar by Candid or Charity Navigator can provide deeper insights about an organization’s transparency regarding leadership, salaries, programs, and more.
Navigating all of this can be tough, but planning ahead will help you make the most of your giving. And, once you’ve tackled these 6 steps, you’ll be ready to start giving to the causes and organizations that mean the most to you. If you’d like to see how a charitable giving strategy can fit in your overall retirement plan, contact Pure for a free financial assessment.
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IMPORTANT DISCLOSURES:
• Investment Advisory and Financial Planning Services are offered through Pure Financial Advisors, LLC, a Registered Investment Advisor.
• Pure Financial Advisors LLC does not offer tax or legal advice. Consult with your tax advisor or attorney regarding specific situations.
• Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
• Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.
• All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy.
• Intended for educational purposes only and are not intended as individualized advice or a guarantee that you will achieve a desired result. Before implementing any strategies discussed you should consult your tax and financial advisors.
CFP® – The CERTIFIED FINANCIAL PLANNER™ certification is by the Certified Financial Planner Board of Standards, Inc. To attain the right to use the CFP® designation, an individual must satisfactorily fulfill education, experience and ethics requirements as well as pass a comprehensive exam. Thirty hours of continuing education is required every two years to maintain the designation.
AIF® – Accredited Investment Fiduciary designation is administered by the Center for Fiduciary Studies fi360. To receive the AIF Designation, an individual must meet prerequisite criteria, complete a training program, and pass a comprehensive examination. Six hours of continuing education is required annually to maintain the designation.
