Money-Smart Strategies for Charitable Giving

(Image credit: donald_gruener)

published 9 December 2019

Ryan Ermey: If you're giving to charity before the end of the year, you should consider a donor-advised fund. What's that? We're glad you asked because we brought on Schwab Charitable president Kim Laughton to tell you what they are and why you need one in our main segment. On today's show, Sandy and I tell you how to protect your identity over the holiday shopping season in a new Deal or No Deal segment featuring discussion of Costco samples and that awful Peloton hat. That's all ahead on this episode of Your Money's Worth. Stick around.

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Ryan Ermey: I should start doing Bing Crosby, Andy Williams on the show. Everyone will love that. We wanted to remind everyone that the holiday season is a time that's rife with opportunities for scam artists and ID thieves. You're swiping your credit card a lot at the register. You're entering information on maybe new web sites where you're trying to find that perfect gift for somebody. So it behooves people to be extra careful this time of year.

Sandy Block: That's right. And fraudsters are counting on the fact that a lot of people are online buying things and that people are distracted and that they're busy. And because they're smart fraudsters, they keep adjusting their tricks and tools. And one thing, because it's become harder to create counterfeit credit cards, they've embedded malicious software in retail sites. So some of the tips that we want to talk about is one, we've mentioned it many times before and talking about ID theft. Use a credit card instead of a debit card. And that's number one. It's easier to get your money back, you can just...

Sandy Block: And another one that has come up a lot is when you, I noticed this when I go online. The web sites are always asking me, "Do you want to save your information?" You'll buy something and they say, "Do you want to save your credit card information?" Don't do it. Because that's where the malicious software comes into play. And they have infected some. It's not just shady retailers, they've infected some good ones too, some big ones. So don't let them save your information. Take the time just to plug it in every ... Type in your credit card every time you buy something. Don't let it sit there where somebody might come along and be able to steal it.

Ryan Ermey: Be on the lookout for some of the very common forms of fraud. Phishing is a big one. Your classic phishing with a "ph" folks. That's people, you might get an email saying, "Starbucks has a new peppermint mocha latte or whatever, click here." Make sure, you have to look at the email addresses on these things. Don't click on anything that looks suspicious. Which I believe that was actually the exact pitch that... we got like cybersecurity training here at Kiplinger and that was the exact pitch that they...

Sandy Block: Yeah. And they'll give up their ID for it. And the other thing to be on the lookout for in the phishing crews is that you'll get emails from maybe a retailer you've done business, or look like they come from Amazon or Walmart or Target. You've done business with them. You get an email saying, "Click on this link to track a package or something like that." And these guys are pretty good. So to avoid that, don't click on the link in the email, go back to the web site and click on it separately. And that way you're avoiding being lured into giving up some information to somebody you don't want to have it.

Ryan Ermey: And the last thing that I would contribute is that, especially if you're on a tight holiday budget, you may be looking for ways to find things for cheaper, right? So last year I was getting my nephew a football jersey and I was looking on the NFL site and it was quite expensive. So I'm thinking, "Oh, maybe I'll get him some replica Chinese knock off for quite a bit cheaper." But any time that you're going to... an off brand, let's call a web site like that, you're opening yourself up to a potential scam. So one thing is if you're buying a gift card from a discount site, it's very possible that they send you a gift card that has no value.

Sandy Block: And be skeptical about good deals, even if you're on Amazon. There's all kinds of stuff on Amazon now. It's just a huge marketplace. And if you see something particularly in the electronics area that's so much cheaper than it is at the Apple store or whatever, you really need to be suspicious about. And if this is not in a box, or something like that, you need to be really suspicious about what it is that you're getting. I mean again, the too good to be true thing really comes into play here when you're looking at cost.

Ryan Ermey: So there you have it folks. A couple of nuggets of advice there for protecting yourself over the holidays. We will put all of our wonderful material on this up in the show notes and if you guys go and click on it and read it, maybe, I can't make any promises but I'll try not to sing on the podcast. Did you know that you can save on capital gains by donating appreciated stock? Kim Laughton talks charitable giving after the break.

Kim Laughton: Well, donor-advised fund is just a specialized account for charitable giving. Much like an IRA or a 401(k) is a specialized account for retirement, or a 529 plan is a specialized account for college savings. Donor-advised funds allows philanthropically minded individuals, couples and families across a variety of wealth and age ranges to set aside money for charitable giving and to do so very tax effectively. It essentially allows you to establish an account by contributing cash or appreciated investments and assets such as publicly traded stocks or mutual funds.

Kim Laughton: When you make that contribution, you get a current year tax deduction. The funds can be invested for potential future growth and then they can be granted out to charities at your convenience over time. So they really just create a one stop shop for all your charitable giving in one place. It's easy to do, very simple, very flexible. And it also allows you, particularly at a place like Schwab and other financial services firms to be thinking about your charitable giving in the same place, and using the same web sites and the same tools as you use for financial planning and investing.

Sandy Block: So Kim, after the tax overhaul in late 2017 the percentage of people who deduct charitable contributions went way down. This is now about maybe 10% of people itemized. How has that affected the use of donor-advised funds? Have they become more popular because people can sort of bunch up contributions in one year and maybe itemize it? I'm curious what you've seen since that that bill was passed.

Kim Laughton: Yeah, no that's a great question. And I think it's a little too early to tell. I think many people didn't really understand how the tax law, even though it was implemented in 2018 they really didn't understand until this year when they filed their taxes in 2019 how they were impacted. So I think their behavior may not change for another year and now that they understand how they're impacted.

Kim Laughton: But certainly donor-advised funds, they first of all, they continue to make it really easy to give appreciated investments, which didn't change in the tax law, right? So when you give appreciated investments to charity, you don't have to pay capital gains tax on the sale of those investments. So you can effectively give 20% more if you have really highly appreciated investments. So that didn't change. We still see lots of people using donor-advised funds just because we make that process so simple.

Kim Laughton: But the second strategy that we are seeing people beginning to use as you referred to as bunching or we sometimes call concentrating their giving. And it's this idea that if you're close to being able to itemize, that it may make sense every few years to give a little bit more to a donor-advised fund. Be able to itemize your deductions in those years and get the full tax advantage of those gifts.

Kim Laughton: And then in the off years you take the standard deduction. So we have a white paper, but if you do the math you can effectively end up saving a lot in taxes and giving more, just by timing your gifts correctly. You may still give to the charities with the same pace, because you can set up recurring grants out of your donor-advised funds. But it allows you just to make sure that you're getting the full tax benefit of those gifts. And those who are taking the standard deduction really aren't getting the full tax benefit of their charitable gifts. So it's a really important strategy for people who are either taking the standard and are close to itemizing or just are curious to really think through that strategy.

Kim Laughton: Well, so the end of the year is always a busy time for giving, number one because it's the holiday season. People are between Thanksgiving and the holidays in December, in a giving mindset. But also the tax deadline to get that current year deduction is December 31st. So there are two things that tend to drive people's behavior. I'd say this year in particular we were having another strong year in the markets. And so people with appreciated investments, this is a good time to think about contributing them. Oftentimes they're working with their investment advisor or their CPA or their tax professional to really think about their tax situation.

Kim Laughton: Investment advisors oftentimes are rebalancing portfolios. If you've got highly appreciated securities, your equity portion of your portfolio may be a little bit higher than you want and it's a good time to be selling some of those. And rather than sell those securities, people oftentimes will instead contribute some of the shares to a charitable account. Because again, they don't have to pay the capital gains tax on the sale if they do that. So for all sorts of reasons, the end of the year ends up being really a good time to be thinking about this. And particularly this year with the markets close to their all time highs. Many people may have appreciated investments, which are very, very, very good thing to be giving.

Sandy Block: So, Kim, the other thing that happens around this time of year is that people sort of get inundated with charitable solicitations. I'm working on a story now about another charity rating organization. Because people do have such a hard time making decisions about who they want to benefit. Do you offer any tools or or any advice to people who maybe set up a donor-advised fund but would like some guidance about how to use that money?

Kim Laughton: Absolutely, and that's very common. Many people know where they want to give but many people do not. And certainly we see people wanting access to more resources. We offer our clients on our web site all sorts of resources for obviously for disaster relief. The Center for Disaster Philanthropy is a great resource. We also partner very closely with an organization at Stanford, the Stanford Center on Philanthropy and Civil Society with the Bill and Melinda Gates foundation on their give lists.

Kim Laughton: Especially that busy time of year when people have a lot of other things to be doing. So that's the real beauty. We see many people who will contribute at the end of the year, even during the year and grant out in the same year and then re-contribute the next year. So some people really do just use it as a one stop shop and almost like a charitable checkbook. And that's very common. We see others more often. Those that have large windfall events, maybe their company goes public or they sell their business or they get a big inheritance, they've got a big chunk of money that can perhaps fund multiple years of giving, maybe even a lifetime of giving and they'll put the money in and then give it out over time.

Kim Laughton: Our accounts are also available to clients with as little as $5,000 to open. So, and our largest accounts have over a billion. So we have... Appeals to a wide range of investors, everyday investors as well as those who are large philanthropists and are really have set up endowment funds for giving over their lifetimes and even into the next generation. They can pass their accounts on as well.

Kim Laughton: No, you don't. I mean one of our objectives in establishing our offer, and we're celebrating our 20th anniversary this year. But Chuck Schwab, the founder of both Schwab and Schwab Charitable felt very strongly that we should give everyday investors access to charitable planning and giving tools. So we've always kept our minimums very low, just low enough for us to be able to sustain our operations. And over 90% of Americans give in some way shape or form. Many people don't consider themselves charitably inclined. But when you ask them if they've got children, if they support their children's schools or youth sports leagues. And oftentimes they don't realize that all of those are charities.

Sandy Block: Anyway. If you want to have some time to waste, the parodies are awesome, but alright. If you seriously do want to give someone exercise equipment for Christmas, and I have heard some defenses in this office of the Peloton bike, there's some people who love their Pelotons. If you want to give one, it is not a deal in December according to our friends at deal news. If you wait until January you can get substantial discounts on all kinds of exercise equipment.

Sandy Block: Exercise equipment is not a deal in December. Our advice is if you really want to give someone exercise equipment and don't think that she'll get a divorce, take a picture of it and then go buy it in January and then you can use all that money that you've saved to buy memberships or cool exercise gear or whatever. The other things just to add that typically go on sale in January that you shouldn't buy in December are obviously holiday decorations. You can get 70% off in January. Winter clothes go on sale in January according to Dealnews and also bedding. So, if you want any of those things, they are not deals now. They will be deals soon. So what do you got Ryan?

Ryan Ermey: Oh my god. I mean, I just really can't believe how well oiled a machine that business is. Anyway, we have a lot of readers of our web site who enjoy all of our Costco content and I think I'm becoming one of them, I'm converted. I have a buddy of mine who has a membership who drives me out there when he's in town. He is usually in town when I'm having parties where there's a lot of booze.

Ryan Ermey: One, and this is if you have kids or you at least have kids in your house. My nephew wakes me up before the sun is up practically to open those presents and Kirkland signature coffee is apparently quite an excellent deal. I'm usually not awake until all of the presents have already been opened. I practically open them in my sleep at this point. But it's cheap at Costco if you buy the Kirkland brand. We found a pack of 120 of the Kirkland Signature, Pacific Bold Organic Pacific Bold Dark-Roast Coffee at about 31 cents a pod.

Ryan Ermey: That'll do it for this episode of Your Money's Worth. For show notes and more great Kiplinger content on the topics we discussed on today's show, visit Kiplinger.com/links/podcasts. You can stay connected with us on Twitter, Facebook or by emailing us at podcast@kiplinger.com. If you liked the show, please remember to rate, review and subscribe to Your Money's worth wherever you get your podcasts. Thanks for listening.

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Block joined Kiplinger in June 2012 from USA Today, where she was a reporter and personal finance columnist for more than 15 years. Prior to that, she worked for the Akron Beacon-Journal and Dow Jones Newswires. In 1993, she was a Knight-Bagehot fellow in economics and business journalism at the Columbia University Graduate School of Journalism. She has a BA in communications from Bethany College in Bethany, W.Va.