Options for Charitable Giving

By Rashmi Chahil on December 1, 2023

As the year winds down, there’s much to consider in terms of investment, retirement, tax, and gift planning.  VWG recommends focusing on required minimum distributions, tax loss-harvesting, and establishing various tax-advantaged vehicles such as 529 savings plans and employer-sponsored retirement plans.  Charitable giving is also a top priority for our clients.  Here is an overview of various ways to achieve your philanthropic goals: 

Set up a Donor Advised Fund: A Donor Advised Fund (DAF) is a simplified approach to supporting charities while maximizing charitable contributions and tax benefits.   It is a single account that is titled in your name or a name of your choosing.  You make an irrevocable contribution of personal assets such as cash, stock, real estate, or even private interests, which allows you to claim an immediate tax deduction at the time of contribution.  After your DAF is funded, you can use it to direct charitable grants to the organizations you choose.  Grants can be made over a period of years, even though the tax deduction is taken in the year of funding.  Excess funds in your DAF can be invested as you choose while you wait to direct future grants.

Donor Advised Fund Tips:

• If you donate cash, you’re generally eligible for an income tax deduction up to 60% of your Adjusted Gross Income (AGI).
• If you have long-term appreciated assets, such as stocks, mutual funds, and bonds, you have an opportunity to further maximize your deduction. You can take an income tax deduction in the amount of the full fair-market value, up to 30% of your AGI.  By donating assets instead of selling, you also eliminate capital gains taxes and a potential Medicare surtax (please note a 3.8% Medicare surtax kicks in based on AGI threshold, which for married couples is $250K), which combined could be up to a savings of 23.8% in taxes.
• Grants from DAFs can only be made to 501(c)(3) IRS-qualified public charities.

Consider Charitable Gift Bunching: Due to recent tax law changes, the ability to itemize deductions has diminished for many taxpayers.  The standard deduction has nearly doubled, and several common deductions have been capped or eliminated altogether.  Those who are charitably inclined should consider ‘bunching’ multiple years of planned charitable donations into a single tax year to allow them to itemize tax deductions. 

Charitable Gift Bunching Tips:

• If you are nearing retirement and expect to be in a lower tax bracket in the future, bunching now can provide greater tax savings.
• Bunching contributions can also be used to help offset taxable income generated from making a Roth IRA conversion. 
• A Donor Advised Fund is a simple way to facilitate charitable gift bunching by making a lump sum contribution in a single year, while smoothing out the timing of directed grants to various charitable organizations over successive years.   

Make a Qualified Charitable Distribution: A Qualified Charitable Distribution (QCD) is a direct transfer from your IRA to a qualified charity.  A QCD is counted towards satisfying your required minimum distribution (RMD) for the tax year, and it is not deemed to be taxable income.  Keeping your AGI lower may allow you to remain in a lower tax bracket which could reduce the impact of certain tax credits and deductions, such as Social Security and Medicare.  Unlike Donor Advised Funds, QCDs do not require you to itemize deductions to realize these substantial tax benefits. 

Qualified Charitable Distribution Tips:

• The maximum annual amount that qualifies for a QCD is $100,000 per person.  This means that if you’re a married couple filing jointly, and you each have an IRA, you can each donate up to $100k.
• Although the SECURE Act 2.0 increased the age at which an IRA owner must begin RMDs to age 73, the age for being eligible to make a QCD remains at 70 ½.
• Like Donor Advised Funds, QCDs must be made to 501(c)(3) IRS-qualified public charities.
• A QCD is reported as a normal distribution on IRS Form 1099-R.  There is no special coding for QCDs on 1099-Rs, so remember to keep records, such as a gift acknowledgment letter and gift receipts, for your tax return.
• Starting in 2023, the Secure Act 2.0 allows a one-time-only QCD up to $50,000 to a “split-interest entity”, such as a charitable gift annuity (CGA) or charitable remainder trust (CRT).

Consider using a Donor Advised Fund, Qualified Charitable Distribution, or gift bunching to fully maximize your charitable endeavors.  We encourage you to reach out to your VWG financial advisor to discuss philanthropic strategies for this year and beyond.

Disclosures

VWG Wealth Management is a group comprised of investment professionals registered with Hightower Advisors, LLC, an SEC registered investment adviser. Some investment professionals may also be registered with Hightower Securities, LLC, member FINRA and SIPC. Advisory services are offered through Hightower Advisors, LLC. Securities are offered through Hightower Securities, LLC. All information referenced herein is from sources believed to be reliable. VWG Wealth Management and Hightower Advisors, LLC have not independently verified the accuracy or completeness of the information contained in this document. VWG Wealth Management and Hightower Advisors, LLC or any of its affiliates make no representations or warranties, express or implied, as to the accuracy or completeness of the information or for statements or errors or omissions, or results obtained from the use of this information. VWG Wealth Management and Hightower Advisors, LLC or any of its affiliates assume no liability for any action made or taken in reliance on or relating in any way to the information. This document and the materials contained herein were created for informational purposes only; the opinions expressed are solely those of the author(s), and do not represent those of Hightower Advisors, LLC or any of its affiliates. VWG Wealth Management and Hightower Advisors, LLC or any of its affiliates do not provide tax or legal advice. This material was not intended or written to be used or presented to any entity as tax or legal advice. Clients are urged to consult their tax and/or legal advisor for related questions.