When the holidays approach, Americans feel moved to open their wallets a little more to help the needy.
And for retirees, that seasonal urge can fit neatly into their overall retirement plan – if they’re intentional about how they go about it.
“Charitable giving is a frequently neglected area of financial planning, but it’s important for one’s financial health and spiritual and emotional well-being,” said Patrick Rush (www.patrickrushtfa.com), CEO of Triad Financial Advisors and the ForbesBooks author of “Gain Big and Give Back: Financial Planning with Intention.”
“I think it’s a valuable thing to do at any stage of life, and just because you’re retired doesn’t mean you have to cut back. You can combine your passion for a cause with smart tax and investment advice.”
Adding a charitable-giving component to someone’s financial plan isn’t always simple, though, and not just because everyone has different amounts of money they potentially could set aside for such largesse.
“Every person comes into my office with a unique set of experiences, values, wants, needs, fears, hopes, and desires,” Rush said. “Consequently, you could give five people $1 million each and they’re all going to respond to it in a myriad of different ways. Each financial plan must account for these emotional and personal nuances.”
That said, Rush has suggestions for those who want to satisfy their urge for charitable giving – and take advantage of deductions the tax laws allow before Dec. 31:
Donor-advised funds. These are personal charitable accounts opened in the name of one or more donors and held in custody by a nonprofit organization, such as a community foundation, university or other IRS-qualified charity. Here’s how it works: Let’s say someone has $50,000 in a stock. They can sell that stock and, instead of paying the capital gains tax, place the money in a donor-advised fund and claim the full $50,000 as a charitable deduction. But they don’t have to donate the money all at once. The money remains in the fund and can be donated bit-by-bit over a period of years. In the meantime, it draws interest. “You save money and benefit a worthy cause,” Rush says. “That’s a win-win for all parties.”
Qualified charitable distributions. This tax strategy is available to investors over the age of 70½, and can be especially helpful to those 72 and older who must take IRS-mandated required minimum distributions from their IRA or 401(k). “If you’ve accumulated a lot in these accounts, this often means you’re forced to withdraw way more than you actually need,” Rush says. “But an option is to write a check to a favorite charity from the retirement account. In that way, the distribution is not taxed, but still counts as your required withdrawal. The donation also lowers your taxable income.”
A coronavirus relief bill exception. Generally, if you take the standard deduction rather than itemize when you file your income taxes, you can’t deduct charitable giving. But an exception was created as part of the coronavirus relief bill passed in March, Rush said. For 2020, you can count up to $300 as a charitable deduction when you file your taxes in 2021, even if you take the standard deduction.
That’s worth remembering as Dec. 31 nears and you’re feeling the holiday spirit. “Those charities and nonprofits certainly could use the money,” Rush says.
Even with the potential for tax savings, Rush said it’s important to remember that charitable giving and community volunteering have meaning beyond money.
“Each December, you can find our employees ringing bells for the Salvation Army,” he says. “Some of our clients get involved, too, and my family turns out as well. It’s important to me to inculcate these values in my children. It’s never too early to learn to be grateful for what you have and to express that gratitude by giving something back.”
About Patrick Rush. He is the author of the Amazon Bestseller “Gain Big and Give Back: Financial Planning with Intention,” is the CEO of Triad Financial Advisers. He is a Certified Financial Planner and NAPFA-Registered Financial Adviser. With more than two decades of experience, Rush has received national recognition as a top financial advisor by Forbes, Barron’s and the Financial Times, and Triad Financial Advisors was recognized by the Invest in Others Foundation as a “Charitable Champion.”