SWFG: Tax Time - How Can We be More Tax Efficient in our Giving
Qualified Charitable Distributions (QCDs) as well as Donor Advised Funds are two very useful tools for giving while you are alive. A QCD can be made from an IRA account beginning at age 70.5 while a Donor Advised Fund can be created at any time.
However, do you plan to give charitably once you pass away? If leaving money to charity is part of your estate plans, there are no better funds to leave than traditional IRA assets. The Wall Street Journal article below painted this picture best:
“Say Jane, a widow with children, wants to leave a total of $20,000 at her death to several charities such as her church and college. She expects to have more than $20,000 in each of three accounts at that time. One account holds cash, one is a traditional IRA holding stocks and funds, and one is a taxable investment account holding stocks she bought decades ago.
Jane ‘s estate, like most Americans, will be smaller than the current estate tax exemption of about $12 million, she should then focus on minimizing her heirs’ income taxes on assets she’s leaving them and donating traditional IRA assets typically does this best. If Jane leaves the IRA assets to her heirs, they will have taxable withdrawals – and the IRA will likely have to be emptied within 10 years, ending its tax-free growth.
Giving IRA assets funnels pretax dollars to the charities, which won’t owe tax on them.
A cash donation would be of after-tax dollars.
Donating the IRA assets to charity is also typically better than giving stock held in a taxable account. Under a provision known as the step-up there is no capital-gains tax on such investment assets held at death.
So, if Jane purchased her $20,000 of stock for $5,000, the step-up could save her heirs capital-gains tax on $15,000 when they sell the shares later. This valuable benefit would be lost if she made her donations with stock.”
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Regards,
Warren D. Stribling, IV, CFP®
Principal
warren.stribling@striblingwhalen.com
Brian E. Whalen, CFP®, CIMA®, AIF®
Principal
brian.whalen@striblingwhalen.com
Jacob Beauchamp, AAMS®
Financial Advisor
jacob.beauchamp@striblingwhalen.com
https://www.wsj.com/articles/leave-ira-money-to-charity-donation-death-bequest-daf-11662073502
Disclosure:
Any opinions are those of Stribling~Whalen Financial Group and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions, or forecasts provided herein will prove to be correct.
Every investor’s situation is unique, and you should consider your investment goals, risk tolerance and time horizon before making any investment. Investing involves risk and you may incur a profit or loss regardless of the strategy selected. The forgoing is not a recommendation to buy or sell any individual security or any combination of securities. Be sure to contact a qualified professional regarding your particular situation before making any investment or withdrawal decision.
While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.
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