It’s no secret that the coronavirus pandemic has upended nearly every aspect of our lives. The imposing economic and health crisis has left many charities in need. Given the economic turmoil, many people wondered how these organizations, and the people they serve, would fare. But donors have continued their generosity throughout these difficult times.
Fidelity Charitable conducted a study that revealed 54% of donors planned on maintaining their regular giving and 25% intended to give more to better support the great need. How can you make a plan to donate this year? Let’s take a look at a few options to give smart, safe, and abundant.
Build a realistic plan
Everyone has been affected by the pandemic in different ways. Take some time to evaluate where you are mentally, physically, and financially before committing to a giving plan. Ask yourself,
- How much can you reasonably expect to give this year?
- Will donating negatively affect your lifestyle (ie cut into daily living costs)?
- What are your views on charitable donations this year?
Your giving strategy might look different than years prior and that is okay. You might not be in a position to give much or you could afford to give a bit more. No matter where you fall, you have to evaluate your situation and make a unique plan for your donations.
Take a look at your budget and what you currently have allocated for charitable donations. Looking for ways to maximize your gift? Try pooling all your money to support one or two charities in need during this time. You could also look to donate locally to help improve the regional economy and further your community.
Give with a DAF
Donor-advised funds are an excellent, tax-efficient way to donate to charitable organizations. A DAF is managed by a third-party provider like Fidelity, Vanguard, Charles Schwab, or even a local community foundation. Most providers allow you to open a fund with $5,000, but some require a larger upfront investment.
You can donate anything from cash to appreciated assets to real estate stock and more into the account, and when you are ready, recommend grants to the qualified charity of your choice. Your investments grow tax-free and you can write off the amount you donate on your taxes, but keep in mind you have to itemize to qualify for the deduction.
Donating appreciated assets is a great strategy because you are able to maximize your gift without incurring capital gains tax. You can also deduct the value of the shares when you donate them.
If you are looking for a way to include your family in your charitable efforts, DAFs are a great tool and more cost-effective than starting a foundation, for example. How can you get the family involved? Each member of your family could research and select a charity to donate to every year, for example. That gets everyone involved in the process and establishes charitable giving as a family tradition.
Make the most of QCDs
Retirees have a unique opportunity to donate all or a portion of their required minimum distributions (RMDs) to charity through a QCD. A QCD enables you to donate to a qualified charity with funds from your IRA. While many IRAs qualify for this strategy, traditional IRAs are most common.
RMDs from your traditional IRA can boost your taxable income, so donating some of those funds can help smooth out your tax liability.
A few rules to keep in mind,
- You must be at least 70 ½.
- Contribution limits are $100,000 per account holder (married couples could technically donate up to $200,000 if they each donated from their accounts).
- QCDs must be done by a custodian to custodian transfer. Should you withdraw the money then subsequently donate it, you wouldn’t qualify for a QCD.
- Funds must go to qualified charities 501(c)(3). DAFs and private foundations don’t qualify.
- You can take advantage of a QCD without itemizing taxes.
Both the SECURE Act and the CARES Act will update how you implement your QCDs this year. The CARES Act suspended RMDs for 2020, so you don’t have to take them this year. If you need some of your RMDs for yearly income, you can, of course, still take them.
The SECURE Act revised the age requirement for RMDs to 72, which means people might take advantage of QCDs a little later on in retirement. But this likely won’t impact you too severely. There is another change to watch out for.
Another SECURE Act provision enables anyone who earns income to contribute to an IRA. While important for tax deductions and compounding investments, it presents some tax hurdles for QCDs. Should you contribute to your IRA after 70 ½, that could impact the amount of your QCD that is tax-deductible. Be sure to talk with your financial and tax professionals to see how this rule could impact you.
This year might change your charitable giving strategy, but it’s also important to give to yourself this season. Give yourself time, grace, and love to rest and recharge for the new year. It’s crucial to spend time on your health and wellbeing. We challenge you to make that a priority this season. For you that might be safely spending time with loved ones, keeping a tighter holiday budget, or engaging in activities that bring you joy.
It’s so hard to find peace during this time, but anything you can do to find it is worth your time. If you would like to talk about your charitable giving plan or other year-end financial questions, get in touch with us today.