Charitable giving is a common element of a financial plan and a great way to express your values within your community. Done strategically, your generosity can not only enhance your financial plan — but also support institutions and organizations you care about. Here are three tips for maximizing your charitable giving strategies.
1. Donate your Required Minimum Distributions (RMD).
The IRS requires people to take distributions (RMD) from most retirement accounts starting at 73 years old. When you take that distribution, the IRS will also tax the income. Rather than follow this standard approach, you can donate some or all (subject to limitations) of your RMD directly to a charity. By doing so, you can support a nonprofit you care about while minimizing your tax liability.
This strategy can work well for people who don’t need to use all of their RMD for living expenses. Further, having your financial advisor collaborate with a tax professional can help identify whether this strategy make sense for your goals.
2. Donate money to a community foundation.
Another charitable giving option is to donate money to a Community Foundation, rather than take the IRS’s standard tax deduction for donations. Typically, every city/town has a Community Foundation, which is a public charity serving its geographic location. The Foundation will pool together money from various donors to support their community’s nonprofits.
By donating to your local Community Foundation, you can choose where to allocate your funds. And you can pool multiple years of gifting to deduct more than what the standard tax deduction allows. This strategy can align with your financial and giving goals while boosting the donation a nonprofit receives from you.
3. Include your favorite charity in your estate plan.
If you have a charity that you regularly donate to, consider including them in your estate plan. You can determine the type of gift you want them to receive, and from there, set them up as part of your estate. This strategy can help you ensure that the nonprofit(s) you care about will continue receiving your gift in your legacy.
The Takeaway
No matter if you’re still building your financial foundation or are in retirement, you can make charitable giving part of your short- and long-term plans. We can work with you to find the right path for your unique financial life — while coordinating our support with your trusted legal and tax advisors. Call us today at (619) 713-5950 to start the conversation. We’re ready to help!