Leaving a Legacy: How to Plan Your Charitable Giving in Retirement


April 5, 2024

Leaving a Legacy: How to Plan Your Charitable Giving in Retirement

April 5, 2024

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Retirement marks a significant transition, not just from work to leisure, but also in how individuals can contribute to the causes they hold dear. For many retirees, the desire to make a meaningful impact through philanthropy remains strong, but the approach to giving often shifts toward a more strategic, informed perspective. Strategic charitable giving transcends the simple act of writing a check to a favored charity. It involves a thoughtful, planned approach that maximizes the effectiveness of donations in alignment with broader financial goals and retirement planning.

In this blog post, we will explore the multifaceted benefits of charitable giving in retirement, delve into strategic approaches that amplify the value and impact of donations, and offer guidance on crafting a strategy that enriches both the giver and the recipient. Whether you’re a seasoned philanthropist or newly considering how to incorporate giving into your retirement planning, understanding the principles of this concept can help empower you to make a lasting difference in the world. 

Understanding the Benefits of Charitable Giving in Retirement 

Retirement offers a wealth of opportunities for giving back, and it’s not just about feeling good. Yes, there’s a lot of personal satisfaction in supporting causes close to your heart, but charitable giving in your golden years can also come with some financial perks. Let’s break down how giving back can benefit you, your wallet, and the world. 

Tax Advantages of Charitable Donations for Retirees 

First off, let’s talk about the tax benefits. When you donate to charity during retirement, you can potentially lower your tax bill in a couple of ways. If you’re itemizing deductions on your tax return, charitable donations can be a significant deduction. For those taking required minimum distributions (RMDs) from retirement accounts, a move like donating directly to a charity through a qualified charitable distribution (QCD) can count towards your RMD and not be counted as taxable income. This means you can fulfill your philanthropic goals and manage your tax exposure in one fell swoop. 

Enhancing Personal Fulfillment and Legacy 

The benefits of charitable giving extend far beyond the numbers on your tax return. Retirement can be a time of reflection, a period when you think about the legacy you want to leave. Charitable giving offers a powerful avenue to make a lasting impact, allowing you to support the causes and organizations that align with your values and vision for the future. It’s about creating a legacy that reflects your commitment to making the world a better place, something that can bring immense personal fulfillment and pride. 

Supporting Causes and Communities That Matter to the Retiree 

On a more personal level, charitable giving in retirement allows you to strengthen the communities and causes you’ve always cared about—or maybe even discover new ones. Whether it’s funding scholarships, supporting healthcare research, conserving natural spaces, or helping vulnerable populations, your contributions can make a real difference.   

Strategic Approaches to Charitable Giving 

When it comes to charitable giving in retirement, there’s more than one way to support your favorite causes. From straightforward donations to more complex financial tools, understanding your options can help you make the most of your contributions. Let’s dive into some strategic approaches that can enhance your charitable giving. 

Direct Donations 

Choosing the Right Charities: The first step is finding organizations that align with your values and goals. Use resources like Charity Navigator or GuideStar to research and vet charities based on their effectiveness, financial health, and transparency. Doing your homework helps you make sure that your donations go to reputable organizations. 

Tax Implications and Benefits: Donating directly can offer significant tax benefits, especially if you itemize deductions on your tax return. Remember, keeping a record of your donations is crucial for tax purposes. Depending on your financial situation, these contributions can reduce your taxable income, potentially lowering your tax bracket. 

Donor-Advised Funds (DAFs) 

Explanation: Donor-advised funds serve as a charitable investment account, allowing you to contribute cash, stocks, or other assets. You get an immediate tax deduction for the year you contribute to your DAF, but you can distribute funds to your chosen charities over time.  

Benefits for Retirees: DAFs are particularly appealing for retirees looking to simplify their giving. They offer flexibility in timing your donations for maximum tax advantage, the ability to grow your contributions tax-free, and the convenience of managing all your charitable giving from one account. 

Setting Up a DAF: Most major financial institutions have charitable arms that offer DAFs. Setting one up involves choosing your financial provider, deciding on the initial contribution (there’s often a minimum), and selecting your investment preferences. After that, you’re ready to start recommending grants to charities of your choice. 

Charitable Trusts 

Types of Charitable Trusts: Charitable remainder trusts (CRTs) and charitable lead trusts (CLTs) are two common types. CRTs provide you (or another designated beneficiary) with income for a set period, after which the remaining assets go to your chosen charity. CLTs work in reverse, giving income to the charity first, with the remainder going to your beneficiaries. 

 Tax Advantages and Income Potential: Both types of trusts offer tax benefits, such as immediate tax deductions and potential savings on estate taxes. CRTs can provide an income stream, which can be appealing for retirees looking to supplement their income while also planning a charitable gift. 

Considerations: Setting up a charitable trust can be complex and requires professional advice. The choice between a CRT and a CLT depends on your financial goals, income needs, and philanthropic intentions. 

Qualified Charitable Distributions (QCDs) from IRAs 

Overview: As of 2024, QCDs allow those aged 70½ or older to donate up to $105,000 directly from their IRA to a charity, without the distribution being counted as taxable income. 

 Benefits: This can be especially beneficial for retirees who must take required minimum distributions from their IRAs, as QCDs can satisfy the RMD without increasing taxable income. This can help manage your tax bracket and potentially reduce taxes on Social Security benefits. 

Executing QCDs: To make a QCD, you must direct your IRA trustee to make the distribution directly to the charity. It’s imperative to ensure the charity is eligible (has 501(c)(3) status) and that you obtain a receipt for your donation for tax purposes. 

Timing and Amount: Crafting Your Charitable Giving Strategy 

When you’ve settled into retirement and are looking to give back, deciding when to donate and how much can make a big difference—not just for the causes you support but for your own financial health as well. Let’s talk about how to craft a charitable giving strategy that feels right for you. 

How to Determine the Right Time to Give 

Tax Considerations: One of the first things to consider is your tax situation. Making donations in years when you have higher taxable income can provide greater tax relief. For retirees, this might mean timing your donations around the sale of assets, taking RMDs, or any year you receive additional income. 

 Market Conditions: The state of your investments can also influence your decision. Donating appreciated stocks directly to charities, for example, can be a tax-efficient way to give, allowing you to avoid capital gains tax while still claiming a deduction. 

 Personal Milestones: Significant personal events or milestones can also be a good time to consider making charitable contributions. Birthdays, anniversaries, or the holiday season can be meaningful times to give back, aligning personal celebration with philanthropy. 

Assessing the Amount to Donate: Balancing Generosity and Financial Stability 

Evaluate Your Financial Situation: Before deciding how much to give, take a good look at your finances. Consider your income, expenses, and future financial needs. Be sure you’re in a position to give without compromising your financial security, especially given the unpredictable nature of retirement expenses. 

Consider a Percentage: Some people find it helpful to decide on a percentage of their income or assets to donate each year. This approach can flexibly adjust to your financial situation, allowing you to give more when you can and less when you need to tighten the belt. 

 Legacy Giving: If you’re concerned about having enough to live on now but still want to make a significant impact, consider legacy giving. This involves leaving a portion of your estate to charity in your will, ensuring your charitable goals are met without affecting your current financial stability. 

The Role of Financial Advisors in Planning Charitable Donations 

Professional Guidance: A financial professional with experience in charitable giving can be invaluable. They can help you understand the tax implications of different giving strategies, advise on the timing and amount of donations, and help you navigate the complexities of setting up donor-advised funds or charitable trusts. 

Tailored Strategies: Every retiree’s financial situation is unique, and an advisor can tailor your giving strategy to your specific needs. They can help you balance generosity with financial security, ensuring that your charitable giving aligns with your overall retirement plan. 

Implementation and Monitoring: Beyond planning, advisors can assist in implementing your giving strategy and monitoring its progress. They can coordinate with charities and financial institutions on your behalf and adjust your plan as your financial situation or goals change. 

 

Conclusion

While starting to plan your strategy for charitable giving might feel overwhelming, remember every journey begins with a single step. Reflect on the causes that matter most to you and consider how integrating charitable giving into your financial plan can amplify your impact. Consulting with a financial professional is highly recommended, helping you navigate your options to make sure your charitable activities enhance your overall financial health. 

So, why wait? Begin shaping a charitable giving strategy that reflects your values and financial goals today. Strategic giving is not just about aiding others; it’s about enriching your retirement with purpose and passion. 

 

 


Standard Disclosure

This blog expresses the author’s views as of the date indicated, are subject to change without notice, and may not be updated.  The information contained within is believed to be from reliable sources.  However, its accurateness, completeness, and the opinions based thereon by the author are not guaranteed – no responsibility is assumed for omissions or errors.  This blog aims to expose you to ideas and financial vehicles that may help you work towards your financial goals. No promises or guarantees are made that you will accomplish such goals. Past performance is no guarantee of future results, and any expected returns or hypothetical projections may not reflect actual future performance or outcomes. All investments involve risk and may lose money. Nothing in this document should be construed as investment, tax, financial, accounting, or legal advice. Each prospective investor must evaluate and investigate any investments considered or any investment strategies or recommendations described herein (including the risks and merits thereof), seek professional advice for their particular circumstances, and inform themselves about the tax or other consequences of any investments or services considered.  Investment advisory services are offered through Liberty Wealth Management, LLC (“LWM”), DBA Liberty Group, an SEC-registered investment adviser.  For additional information on LWM or its investment professionals, please visit www.adviserinfo.sec.gov  or contact us directly at 411 30th Street, 2nd Floor, Oakland, CA  94609, T: 510-658-1880, F: 510-658-1886,  www.libertygroupllc.com. Registration with the U.S. Securities and Exchange Commission or any state securities authority does not imply a certain level of skill or training.

References

Fidelity. (n.d.) Qualified Charitable Distributions (QCDs). https://www.fidelity.com/building-savings/learn-about-iras/required-minimum-distributions/qcds 

Fidelity Charitable. (n.d.). 7 Charitable Tax Deduction Questions Answered. https://www.fidelitycharitable.org/guidance/charitable-tax-strategies/charitable-tax-deductions.html 

Fidelity Charitable. (January 2024). Secure Act 2.0 Retirement Provisions. https://www.fidelitycharitable.org/articles/secure-act-2-0-retirement-provisions.html 

IRS. (December 27, 2023). Donor-advised Funds. https://www.irs.gov/charities-non-profits/charitable-organizations/donor-advised-funds 

Kagan, Julia. (January 5, 2023). Charitable Remainder Trust: Definition, How It Works, and Types. Investopedia. https://www.investopedia.com/terms/c/charitableremaindertrust.asp 

Kagan, Julia. (December 9, 2022). Charitable Lead Trust: Meaning, Pros and Cons, FAQs. Investopedia. https://www.investopedia.com/terms/c/charitableleadtrust.asp 

 

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