Your Retirement … with Marisa Otto: Veteran and service canine receive prestigious Purina Dog Chow award
You can begin making QCDs of up to $100,000 per year as early as age 70½.
By Marisa Otto
Marisa Otto
Once again, it’s the season of generosity. In addition to considering gifts for loved ones, you might want to think about charitable gifts as well. But what should you know before making these gifts? And what impact might these gifts have on your financial and tax situation?
First, you may want to create a gift budget by deciding just how much you will give to charitable organizations during the remainder of the year.
Next, look closely at the groups to whom you wish to contribute. You can find many reputable charities, but some others may be less worthy of your support. One of the red flags of a questionable organization is the amount of money it spends on administrative costs versus the amount that goes to its stated purpose. You can check on the spending patterns of charitable groups, and find other valuable information about them, on the well-regarded Charity Navigator website at www.charitynavigator.org.
Once you’ve established a gift budget and are comfortable with the groups to support, you might turn your thoughts to another key issue connected with charitable giving: tax benefits.
A few years ago, changes in the tax laws resulted in a large increase in the standard deduction, which meant many taxpayers found it more favorable not to itemize — and lost the ability to take charitable deductions. But if you still itemize, your charitable gifts or contributions to tax-exempt groups — those that qualify as 501(c)(3) organizations — can generally be deducted, up to 60 percent of your adjusted gross income, although lower limits may apply, depending on the nature of the gift and the organization.
Other, more long-term avenues also exist that combine charitable giving with potential tax benefits. One such possibility is a donor-advised fund, which allows you to make an irrevocable charitable contribution and receive an immediate tax deduction. You can give cash, but if you donate appreciated assets, such as stocks, your tax deduction would be the fair market value of the assets, up to 30 percent of your adjusted gross income. Plus, you would not incur the capital gains tax that would otherwise be due upon the sale of these assets.
Once you establish a donor-advised fund, you have the flexibility to make charitable gifts during a period of time, and you can contribute to the fund as often as you like.
Another possible tax benefit from making charitable contributions could arrive when you start taking required minimum distributions, or RMDs, from some of your retirement accounts, such as your traditional IRA and 401(k). These RMDs could be sizable — and distributions are counted as taxable income. But by taking what’s called a qualified charitable distribution (QCD), you can move money from a traditional or Roth IRA to a qualified charitable organization, possibly satisfying your RMD, which then may be excluded from your taxable income. You must start taking RMDs at 73 but you can begin making QCDs of up to $100,000 per year as early as age 70½. (This amount will be indexed for inflation after 2023.)
Establishing a donor-advised fund and making qualified charitable distributions are significant moves, so consult with your tax advisor first. But if they’re appropriate for your situation, they may help you expand your ability to support the charitable groups whose work you admire.
Marisa Otto, CFP, Financial Advisor, Edward Jones can be reached at (408) 778-4400, or at [email protected], visit www.edwardjones.com, or at 275 Tennant Ave., Suite. 205, Morgan Hill. This column was written by Edward Jones for use by our local Edward Jones Financial Advisor.
