There are few things in this world that can provide more joy and fulfillment than giving to a charitable cause. When you give to a cause that you care about, you feel that you’ve been able to play your part in making the world a better place for everyone. However, the other side of this is that you still need to be able to plan for retirement and leave behind enough wealth for your family to live happy and healthy lives as well. One way to ensure both of these goals are met is through tax-efficient charitable giving. Keep reading to learn several helpful tips and when you’re ready to start implementing your tax-efficient charitable giving strategy, contact your financial experts at Kennedy Wealth Management.
Contribute To A Donor Advised Trust
In order to separate charitable gift decisions from tax planning, contribute to a donor-advised trust. By donating money to a charity that works like an escrow or to an account held with a brokerage firm, you will be awarded potential charitable deduction during the year you donated. You can then disperse funds to the charity of your choice at your own rate. Just keep in mind that any donations you make to a donor-advised trust cannot be removed, and you’ll only be able to contribute to an organization that is approved by the IRS.
Donating With IRA Withdrawals
If you want to, IRA withdrawals can be used as funds for charitable giving. If you are over the age of 70 ½, you’ll be able to remove money from your IRA and put it into charitable giving thus muffling Adjusted Gross Income. However, the money will go straight to a charity approved by the IRS rather than into a donor-advised trust. There are four key benefits to this method: with itemized deductions, you will reduce vulnerability to the IRS Pease Limitation; taxable income will remain low; Medicare premiums will remain low, and a smaller portion of Social Security income will be taxable.
Charitable Gift Annuities
In order to turn appreciated securities into lifelong income, you should set up a charitable gift annuity. By contributing a large gift to certain charities, you will be awarded a lifetime of taxable income and a large charitable deduction during the year you contributed. Unfortunately, since the income is fixed, there will be no accommodation for inflation. Before you make a donation like this, you should check the creditworthiness of the charity since you’ll be relying on them for income.
Charitable Lead Trusts
With this strategy, you will be making a large charitable donation and upon death, the remaining funds will be distributed to your heirs. This strategy works best when you have interest in lifetime charitable giving, anticipate owning a taxable estate and have enough cash flow to support your daily needs. Another way to think of this type of giving as using low-interest rate environments to manage estate taxes while committing to long-term charitable giving.
Charitable Remainder Trusts
A charitable remainder trust is best when interest rates are high, you want to trim appreciated securities from your portfolio, or during a time when you need a large charitable deduction. Although this strategy will turn appreciated securities into income, you’ll also have to deal with more investment risk than with a gift annuity.
Start by transferring appreciated securities to a trust. You will receive a charitable deduction during the year of your contribution. When your required withdrawals are taken each year, you can choose to either have unitrust income which is equal to a fixed percentage of the value of your portfolio or to have annuity trust income which is determined by a fixed dollar amount.
Speak With A Financial Advisor
These are just a few tax-efficient charitable giving strategies to get you started. Charitable giving strategies can be complicated, so it’s important that you speak with an experienced financial advisor to help you get started and determine the best approach for your goals. Here at Kennedy Wealth Management, we are experts in wealth transfer, retirement income planning, 401k and IRA planning, investment management and much more. Give us a call today to get started today.