How to Make a Charitable Plan That Won't Break Your Bank

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.

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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.

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