Foster & Motley offers insight into gifting strategies
When it comes to giving, our nation is charitable almost to a fault, offering up more than $327 billion in 2021 alone. That means most of us are involved in some sort of gifting, especially at this time of year.
Managing assets approaching $2 billion, the Cincinnati-based wealth management firm of Foster & Motley offers some common-sense advice on getting the most benefit from your charitable contributions.
“This time of year, our mailboxes are stuffed with opportunities to give or organizations soliciting gifts,” says Dave Nienaber, financial planner and shareholder. “So we’re talking about a subject that touches a lot of different people.
“My biggest piece of advice is that the primary driver of your gift should be the fact that you want to do good,” adds Nienaber. “Because even in the best-case scenario, each dollar you give saves you 40 cents of tax. In many cases, there is no tax benefit at all.”
While most charitable gifts are rendered in the form of a check or a credit card, there are two tools that can help you realize a tax benefit from your giving: Qualified Charitable Distributions (QCD) and Donor Advised Funds (DAF). A QCD is a cash distribution made directly from an individual retirement account (IRA) to a qualifying charitable organization, while a DAF operates as a charitable investment account established for the purpose of supporting charitable organizations through the recommendation of grants from the DAF.
You must be 70-and-a-half years old to be eligible for a QCD. Each taxpayer is also subject to a maximum QCD of $100,000 per tax year.
“With a QCD you are not actually taking a ‘deduction,’ but it can be better because you are not showing the income in the first place,” says Nienaber. “If you reduce your adjusted gross income, you can also reduce the amount of your Social Security that is subject to tax. You can phase out of other deductions while improving tax credits for things like health care insurance. So there are a number of far reaching benefits to using QCDs. In addition to providing tax benefits, they are also relatively simple to do.
“Some of our clients have a checkbook for their IRA, and if they want to give $1,000 to their church, they simply write a check that gets presented to the custodian of their IRA, and the charity gets paid like they would with any other check. The only thing you have to worry about is to ensure there is cash in your IRA, so you wouldn’t want it to be fully invested or else the charity might get a returned check. But as far as ease goes, QCDs for people over 70 and a half are really a slam dunk.”
A DAF operates as a charitable investment account established for the sole purpose of supporting charitable organizations through the recommendation of grants through the DAF. DAFs can actually increase the odds that you will get a tax benefit and are incredibly easy to use, says Nienaber.
“They act like a charitable piggy bank and allow you to be more strategic about your giving,” he says.
DAFs also allow for multi-year planning for charitable gifts.
“I think it is vital that people consider multi-year charitable planning to allow a donor-advised fund to be used as a tool to maximize their deduction,” Nienaber adds.
At this point, I’m sure you have additional questions. It would be impossible to examine all the intricacies and benefits of QCDs and DAFs in the space allotted here. In addition, the information here is very general in nature and tax laws and benefits change from year to year.
If you would like to know more about QCDs, DAF, or the potential benefits of charitable giving and gifts, visit Foster & Motley’s website at fosterandmotley.com.
