Charitable Gifting 3 Ways

Discover strategic charitable giving strategies that can help you support meaningful causes while aligning with your long-term financial plan.

If you’re charitably minded, you may want to consider how you give, not just how much. Some charitable giving strategies can be more tax-efficient and align better with your financial goals, especially during retirement. In this article, we’ll discuss three ways to approach charitable gifting that you may not have heard of, and which may offer more benefits than simply giving cash. They are gifting stock to charity, gifting your required minimum distribution to charity, and utilizing a charitable gift fund. Keep reading to learn more.

Strategy #1: Gifting Appreciated Stock

Many people are unaware that, instead of gifting cash, you can actually gift appreciated stocks to charity. What is the benefit of doing so? If you have stocks or other securities that have significantly increased in value, giving those shares directly to a charity allows you to avoid paying capital gains tax. You can also get a deduction up to the total amount of your gift, though there are some limitations based on your adjusted gross income (AGI).

Here’s an example. Let’s say you make $500,000 in a year, making your adjusted gross income $500,000. You can deduct up to $150,000, or 30% of your AGI.

The process for giving in this way is relatively simple. Most of the charities that you give to will already have a process in place to do what’s called a DTC transfer. Often, your financial advisor or the brokerage company you’re working with can handle that transfer for you, and there’s typically a form to do so.

Strategy #2: Qualified Charitable Distributions

If you’re subject to required minimum distributions (RMDs), you might choose to give to charity through a Qualified Charitable Distribution (QCD). If you’re over the age of 70 and ½ – and that’s been pushed up to age 73 or 75 for people that have not yet started taking RMDs, based on birth year – you know that you’re required to take out a certain amount every year from your IRA, based on the balance of your IRA the previous year on December 31.

Currently, you can give up to $108,000 this year directly to a charity or multiple charities of your choosing. If you’re using a QCD, you give directly to the charity and then that counts toward your RMD. So, it’s not a deduction in the same way that you give to charity and then deduct it on your tax return, but you don’t have to realize the income at the end of the year.

Here’s an example. Let’s say that your RMD is $105,000. If you take that RMD, it’s going to raise your taxable income by $105,000. However, if you give that same amount to charity, out of your RMD, that’s it doesn’t count as any income on your tax return.

Strategy #3: Charitable Gift Funds

A Charitable Gift Fund (CGF), sometimes referred to as a Donor-Advised Fund (DAF), allows you to put in money and get a deduction in the year that it’s given. A helpful way to think about a charitable gift fund is that it’s like a private family foundation or a charitable wallet – except that it has fewer administrative costs, as well as fewer requirements.

Now, if you start a private family foundation, you’re going to be required to give 5% of that money away or face an excise tax and penalties. With a Charitable Gift Fund, you’re not required to give any amount away in any given year, but you can get a full deduction for the amount that you put into it in any one year.

Let’s discuss exactly how this works. You open up a charitable gift fund – many custodians only require a minimum of $5,000 to open a CGF – and when you make that contribution, you get the deduction in the year that the contribution was given, up to certain limits.

Let’s use the example that we used in stock gifting for this Charitable Gift Fund, too. So, assume that you make $500,000 in any given year and AGI is $500,000. You can give up to $150,000 and get a maximum deduction that year.

SEE ALSO: Giving Back: How Charitable Gift Planning Can Make a Difference

What’s more, you don’t have to give the money away right away if you don’t want to. The reason that’s beneficial is that maybe you have a high-income-earning year, and you want to maximize your deductions that year, but you don’t have a charity in mind yet. Or maybe you’re near retirement and your income is going to go down, and so you want to maximize your deductions this year, but you’re not ready to give it all to a single charity this year.

Here’s an example to show you the potential benefit for a near-retiree. Let’s say your income this year was $500,000, and you like to give $15,000 a year to charity. If you give $15,000 in retirement, you may not be able to deduct it because you may not itemize your deductions. (Remember, if your itemized deductions don’t exceed your standard deduction, then you don’t get to itemize deductions.) In this example, a high-income-earning year this year, you could choose to give ten years’ worth of gifts to the Charitable Gift Fund. That $150,000 gift means you can get the full deduction this year, and then you just continue to give $15,000 out of the Charitable Gift Fund every year for the next ten years. If you do this at age 63, you can use the CGF to make your gifts for a decade, then you can switch to making them through a QCD once you turn 73 and your RMDs begin.

Using Thoughtful Charitable Giving Strategies to Achieve Your Goals

As you can see, charitable giving can be more than just a generous gesture—it can also be a thoughtful part of your financial plan. Whether you choose to gift appreciated stock, use a Qualified Charitable Distribution, or establish a Charitable Gift Fund, each strategy offers potential benefits depending on your financial situation and stage of life. If giving is already a priority for you, it’s worth exploring whether one of these approaches might be a more efficient or impactful way to support the causes you care about.

Would you like to learn more? Contact the Paces Ferry Wealth Advisors team today to discuss your personal financial situation and charitable giving goals.

Paces Ferry Wealth Advisors, LLC is a registered investment advisor with the U.S. Securities and Exchange Commission (“SEC”). This material is intended for informational purposes only. It should not be construed as legal or tax advice and is not intended to replace the advice of a qualified attorney or tax advisor.

Zachary Morris, CFP®

Having traveled to over 35 countries, Zach is a believer in Ralph Waldo Emerson’s statement that Life is about the journey, not the destination. Being a CERTIFIED FINANCIAL PLANNER™ provides Zach the opportunity to help clients define and realize their journey, and co-founding Paces Ferry Wealth Advisors, an independent firm, allows the freedom to define the client experience along the way.