By Eric Reich
With Thanksgiving and the holiday season soon upon us, now is a great time to think about charitable giving. I have always felt that it is important to give back, no matter how big or small. Sometimes that may mean a donation of your time. However, if you can afford to give monetarily to a cause that you feel strongly about, those donations can make a big difference. Fortunately, my staff is also very charitably minded. It is also something that my wife and I have instilled in our children at an early age. While I feel it’s important to practice gratitude year-round and help those in need whenever you can, this time of year always feels even more important.
Charitable giving should be an altruistic act. However, in some situations, there may be a tax benefit to the giver. Now is a good time to start thinking about year-end tax planning. Waiting until the actual year-end can cause you to miss deadlines or make mistakes in your giving efforts. The biggest reason to give, however, is because so many organizations and the individuals they help are in need. Many have struggled since the global pandemic and inflation certainly hasn’t helped the situation. Charitable organizations need donations more than ever. Since every person has different needs and different desires when it comes to giving, here’s a list of several ways that you can give.
- Qualified Charitable Distribution (QCD)
In my opinion, one of the best ways to give is to gift your IRA or your Required Minimum Distribution (RMD) from your IRA. You can gift up to $105,000 per year this way. Also, you must be age 70 ½, and you cannot gift funds from an employer-sponsored plan. It’s important to note that the transfer must go directly to the charity from the IRA, not to you first.
- Life Insurance
You can gift a current or new policy. This option allows you to give more than you otherwise might. Gifting a policy you no longer need or want is a great option. The charity can keep and maintain the policy or possibly sell it. Many times it can be sold for much more than the cash value, and you may get a much larger deduction if they do. Consult your tax advisor!
- Charitable Lead Trust (CLT)
With a charitable lead trust, the charity gets all the income from the trust, and upon death, your beneficiaries get the trust assets.
- Charitable Remainder Trust (CRT)
This is the opposite of a CLT. You get the income, and the charity receives the assets upon death. This may be good for people who need the income and deductions to possibly reduce taxes but have no heirs.
- Charitable Gift Annuity
This gives you a guaranteed income for life via an annuity and a portion of it goes to the charity. The balance goes only to that specific charity unlike a CRT, which can fund multiple charities.
- Real Estate/Collectibles
You gift the property (usually highly appreciated), then the charity sells it. Use caution, though; not all charities have the resources to handle these transactions, so discuss it with them first. Regarding collectibles, they must be highly marketable.
- Appreciated Stock
You gift your stock to a charity, and they can sell it tax-free. You get a deduction without paying the taxes due if you were to sell it yourself. This can be a great way to avoid paying taxes on highly appreciated tech stocks that have seen a large run-up in values in recent years.
- Donor-advised Funds
The fund is managed by the organization, but you direct which investments within the funds you want. They do all the work for a fee. Your deduction is limited to 60% of your adjusted gross income (AGI) for cash donations and 30% on donated securities.
- Pooled Income Fund
This is similar to a DAF, but you have no investment control. There is a limited deduction based on your life expectancy and the fund’s performance.
- Private Foundation
You are the DAF. The deduction is limited to 30% of your AGI for cash donations and 20% for securities. This is designed for ongoing family-giving.
You should consult with your tax advisor and financial advisor to discuss these gifting strategies.
Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. Reich Asset Management, LLC is not affiliated with Kestra IS or Kestra AS. The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation. To view form CRS visit https://bit.ly/KF-Disclosures.
Eric is President and founder of Reich Asset Management, LLC. He relies on his 25 years of experience to help clients have an enjoyable retirement. He is a Certified Financial Planner™ and Certified Investment Management AnalystSM (CIMA®) and has earned his Chartered Life Underwriter® (CLU®) and Chartered Financial Consultant® (ChFC®) designations.
