Charitable Giving in Retirement: 4 Questions to Ask

For many, the desire to engage in charitable giving — giving to our family, communities or world — only grows as we age.

It turns out that giving is good — very good. Numerous studies have found that there is a huge psychological benefit to giving. In fact, giving may make you both happier and healthier.

However, there are four important considerations for making your own donations — big or small.

Think through these four questions to make the right impact with your charitable giving.

1)  Can You Afford to Make a Donation? 

No matter if you have $5 million or $150,000 saved for retirement, there are ways to give back. If you can’t afford a money donation that feels important to you, giving your time is maybe a better and more rewarding gift.

However, before making any kind of donation to family or an organization, you should first carefully plan funding your own retirement. A solid plan for funding your life for as long as you live — no matter how long that turns out to be — should be your primary concern.

2)  What Are the Tax Implications?

Giving is giving, but taxes can play a big part in determining the size of your donations as well as your personal wealth. Capital gains, Required Minimum Deductions (RMDs) and estate taxes are just a few of the tax types you want to avoid or take advantage of in order to maximize your wealth and donations.

In many cases, the benefit of taking advantage of taxes is a factor of 50 percent or more. So — for example — a donation of $1,000 might cost you only $500 when the tax implications are included in the calculations.

Conversely, if done wrong, the donation could cost you more than what you gave.

3)  Where to Give / Amount / Timing / From Which Account?

Related to taxes are the nitty-gritty details of giving. If you are donating to an organization and not family, then choosing a charity that gives you tax advantages can be important. Choosing how much to give in what time period and from what kind of account can really maximize both your donation and your ongoing wealth.

4) What is the Right Vehicle for Your Charitable Giving?

Just Give:

Sometimes you want to keep things simple. And, if you can afford it, that is perfectly fine.

Donor Advised  Funds:

These funds can be a tax-effective way to consolidate, build and grant money to charities. The National Philanthropic Trust  describes a Donor Advised Funds as being like “a charitable savings account: a donor contributes to the fund as frequently as they like and then recommends grants to their favorite charity when they are ready.”

Most of the big banks offer Donor Advised Funds:

• Vanguard Donor-Advised Fund
• Fidelity Donor Advised Funds
• Schwab Charitable

Name the Charity as a Beneficiary for Your Account:

You can name your desired charity or favorite relative as the beneficiary on your tax-deferred plans. This allows the money to pass tax-free to the organization or person. You can even split up your savings into multiple IRA accounts, each with a different beneficiary.

Trusts:

Trusts can be the best way — particularly from a tax perspective — to donate a particularly large amount of money to either family or a charitable organization.

LegalZoom describes using trusts for charitable giving in more detail.

529 Plans:

529 plans have been a popular way that grandparents have helped fund a grandchild’s educational costs. These tax-advantaged accounts can reduce the size of your estate and have other significant tax benefits. However, they can reduce your grandchild’s eligibility for financial aid.

College Raptor, a college advice website, offers a concise rundown of the pros and cons of 529 plans.

Use Your Required Minimum Distributions (RMDs): 

If you must take an RMD but you don’t need the money, you might consider giving the RMD directly to a charity. You will not owe taxes on the amount you give if you make the transfer directly to the firm using the proper channels.

Work with an Expert:

Any one of the above methods of giving might require the advice of an expert. And perhaps you are interested in multiple giving options. Depending on the particulars of your situation, you might want to enlist the counsel of:

• Financial Advisor
• Estate Planner
• Tax Accountant

These different types of advisors have overlapping areas of expertise, but any one of them should be able to help you to maximize your own wealth while sharing your fortunes with the causes or people you care about most.

If you need more general guidance for perspective, a retirement planner can be an excellent way to help you figure out if you are set up for successful charitable giving in retirement.