Wealth Management & Financial Planning

Wealth Management & Financial Planning

What to Know About Charitable Gifts After Retirement

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After 29 years in the financial industry, I can say with complete confidence that nothing can come between you and your retirement more effectively than the IRS-even after retirement. Retirement time presents unique taxation challenges when it comes to individuals’ gifts to churches and other not-for-profit organizations deemed 501c(3) entities.  

The reduction in income that typically occurs after retirement is often accompanied by a move to a lower tax bracket. This situation presents two challenges for charitable entities. First, many people tithe from their income. We work with many families who allocate part of their annual income – from $100 to even $20,000 or more—to non-profits like the Salvation Army, United Way or alma mater. When their income drops upon retirement, these individuals’ gifts are also reduced. A family may have more than $1 million in a tax-deferred retirement account, but the funds are considered an asset and people typically give based on their income rather than their assets.

A second challenge for gifts made after retirement is that a decline in the marginal tax bracket reduces the taxable benefit of the gift. And while this situation does not prevent donors from making gifts, many individuals are highly aware of the tax benefits gifts that accompany giving.

What is a non-profit entity to do? We advise non-profits to become proactive and help donors better understand their gifting. No one likes taxation surprises, including non-profits so we frequently present at charitable organizations to help 501c3 organizations understand the realities affecting taxes and the gifts of retired donors.

As a charitable organization, it is critical to understand three topics: Qualified Charitable Distributions, Donor Advised Funds and the gift of appreciated stock in lieu of cash. These organizations also need to understand bequests and how they function. The better non-profits understand these areas, the better they can help their supporters make the most of their generosity.

Not all organizations can afford to hire an individual to counsel their donors on matters related to gifting. We do our best to help fill that role for organizations who don't have a financial guide. However, there is one standard resource every non-profit must have: An Investment Policy Statement (IPS).  This guide serves as an investment playbook explaining how the organization will treat and invest those funds that come in the form of something other than cash. The IPS also addresses how the organization will invest excess funds.

Not every non-profit organization has an established brokerage account to accept appreciated stock, but that's because they don't understand the tax implications for their donors. Too often, donors don't understand either. Two things every institution should consider when thinking about its financial future are educating the donors who give to the cause, and developing an IPS aligned to the organization’s mission. The conversation needs to start before it's too late. As an organization’s donor base ages, it needs to prepare for changes. The time to act and to help donors is now.

Tax advice provided by CPA’s affiliated with Financial Enhancement Group, LLC.

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column offset=”vc_hidden-lg vc_hidden-md vc_hidden-sm”][vc_widget_sidebar sidebar_id=”sidebar-main”][/vc_column][/vc_row]

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