How to Make a Charitable Plan That Won't Break Your Bank
Giving back is great … if you have a plan that's as sustainable and smart as it is generous. Here are five tips for giving wisely.
Making decisions about gifting can evoke many emotions. As you think about the legacy you want to leave, you may feel a sense of urgency to make a positive impact in the lives of your loved ones and on the world. In my discussions with retirement-age clients about charitable giving, I like to quote a flight attendant’s warning before takeoff: Put your own oxygen mask on first — before helping others.
Having a clear understanding of your overall financial picture can help you securely incorporate charitable gifting into your financial plan.
Here are a few steps you may want to take to secure your financial future so that you can safely offer financial support to friends, family and the charitable organizations you value.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
1. Work with an adviser to review your goals, evaluate your spending and make a solid long-term plan.
My first suggestion is to talk with a financial adviser who can help you establish a prudent long-term plan based on your lifestyle and goals. Before deciding on a gifting plan, your adviser can help you review your financial situation and evaluate the potential impact of different spending choices — retirement timeline, spending amounts, emergency funds, investment risk, etc.
2. Ask to see cash flow projections.
You may also consider asking your adviser to prepare cash flow projections to help you consider what you are comfortable giving away without putting your long-term financial future in jeopardy. They may recommend that you set aside funds for the unexpected and take steps to ensure that your financial plan can withstand periods of negative market returns.
3. Ask your adviser to 'stress test' your financial plan using Monte Carlo analysis.
I believe that stress testing your plan using Monte Carlo analysis is another wise move. This type of analysis is an approach your adviser may use to help ensure your financial plan can withstand and succeed in all market cycles. A Monte Carlo analysis considers a wide range of outcomes and may uncover hidden insights. We cannot predict the future, but Monte Carlo can shed light on the path ahead and consider the sea of probabilities.
4. Evaluate various gifting strategies.
Evaluating different gifting strategies, prioritizing your goals and creating a gifting budget can also be valuable in the process.
Gifting during your lifetime can be very fulfilling — as you can witness the immediate impact of your generosity. However, these gifts are irrevocable, and you lose access to those funds permanently.
Leaving bequests (gifts designated in your will) allows for more flexibility in your lifetime. This approach still allows you to give gifts in line with your values, though you do give up the opportunity to witness the impact of those gifts firsthand.
Being thoughtful when designing your charitable giving strategy and continuously monitoring progress are key to both financial success and alignment of values.
5. Consider qualified charitable distributions.
Qualified charitable distributions (QCDs) can be a win-win strategy to make an impact on charitable organizations and your tax planning. QCDs allow individuals who are over the age of 70½ to donate money directly to qualified charities from their IRAs. Qualified donations made directly from an IRA count toward your required minimum distributions but are not included in your income. This can be a valuable strategy for those seeking to reduce tax liability and support causes that are important to them.
Here are some considerations:
- If you are required to take an RMD but do not need the income, a QCD can be an effective way to donate directly to charity and avoid paying income tax on that distribution as the donor does not report the QCD as taxable income.
- You can make a QCD of exactly your RMD amount (if it is below the limit for QCDs) and keep that amount out of your adjusted gross income.
- QCDs can help manage your adjusted gross income (AGI) bracket and be even more valuable for those managing Medicare premiums as a QCD reduces the income that Medicare premiums are based on.
- The 2024 QCD limit is up to $105,000 per person.
- QCDs must be transferred directly to a qualifying charity, so those looking to donate to donor-advised funds and private foundations will not benefit from this approach.
- QCD donations are not tax deductible. However, the tax benefit of the distribution amount not being included in your AGI can create other tax advantages, such as reducing income phaseouts for other deductions and credits.
The bottom line for those with a strong desire to give back to their families, their communities and to charity is that clearly your heart is in the right place. Now you just need to make sure your finances and your gifting plan are in place to make your generous goals a reality.
The information contained herein is provided for informational purposes only and should not be construed as the provision of personalized investment advice, or an offer to sell or the solicitation of any offer to buy any securities.
Related Content
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.
Elena Ladygina is a Senior Advisor in the New York office of Veris Wealth Partners. She is a CFA® Charterholder and holds the CERTIFIED FINANCIAL PLANNER™ certification. Elena has nearly two decades of experience serving on and chairing Investment committees as well as analyzing investment managers, creating and advancing firms’ investment philosophies and elevating client portfolios by combining financial rigor and risk considerations.
-
Average Net Worth by Age: How Do You Measure Up?
Financial advisors discuss the secrets to growing your net worth over time.
By Adam Shell Published
-
Three Charitable Giving Strategies for High-Net-Worth Individuals
If you have $1 million or more saved for retirement, these charitable giving strategies can help you give efficiently and save on taxes.
By Joe F. Schmitz Jr., CFP®, ChFC® Published
-
Three Charitable Giving Strategies for High-Net-Worth Individuals
If you have $1 million or more saved for retirement, these charitable giving strategies can help you give efficiently and save on taxes.
By Joe F. Schmitz Jr., CFP®, ChFC® Published
-
The Wealth-Building Powers of Health Savings Accounts (HSAs)
Health savings accounts could be the most underutilized wealth-building tool out there. Here’s who should use them and how to maximize their benefits.
By Eric Roberge, Certified Financial Planner (CFP) and Investment Adviser Published
-
Seven Ways to Be an Absolute Jerk as a Lawyer
Here's what law students need to know about damaging their relationships with other lawyers and judges and running up the bill for clients.
By H. Dennis Beaver, Esq. Published
-
Stock Market Today: Stocks Are Positively Mixed to Open December
Technology led the way Monday as two of the three main equity indexes closed higher.
By David Dittman Published
-
The Best Retail Stocks to Buy This Holiday Season
E-commerce is a growing trend, but most folks still prefer to shop in stores. That makes these dominant retail stocks worth a closer look.
By Louis Navellier Published
-
One Good Way to Withdraw Retirement Assets (and a Bad One)
Don't withdraw retirement assets haphazardly. Managing distributions intentionally can lower your taxes, conserve your wealth and reduce Medicare premiums.
By Justin Haywood, CFP® Published
-
What Is Capital Gains Tax Deferral?
Spoiler alert: It's the secret weapon of savvy real estate investors. Here's how it works and details about the tools you need to do it.
By Daniel Goodwin Published
-
Don't Leave Your Heirs an IRA Tax Bomb
Your traditional IRA has served you well, but when your heirs inherit it, watch out. Consider some of these strategies to minimize their tax burdens.
By Kelsey M. Simasko, Esq. Published