Financial security is a top concern for many Americans. When it comes to planning for retirement, the necessity of saving enough money is front-of-mind for virtually every investor. But there’s one area where most people are missing out on an opportunity to build their legacy—charitable giving in their retirement plans. Though 2020 was a difficult year for many around the world, the numbers pointed to a heartwarming trend in charitable giving among the American public. Data collected by the Fundraising Effectiveness Project found that giving was 7.6% higher throughout the first three quarters of 2020 than the prior year, and 25% more giving was done on Giving Tuesday.
This month, in the spirit of Giving Tuesday, we’ll be outlining several strategies you can use to make charitable giving a fruitful part of your life and retirement plan.
1. Work giving into your budget
Most people who are familiar with budgeting have at some point heard of the 50/30/20 concept—set aside 50% of your money for needs, 30% for wants, and the remaining 20% for savings and paying off debts. If you’re looking to make charitable giving a part of your legacy, experts recommend working it into your monthly budget just like you would any other expense. How much you choose to give is entirely up to you, although most people strive for about 10% of their income and pull the funds from their “wants” category. If your monthly budget looks different than the standard 50/30/20 split, it is okay to adjust your gifts based on what you can afford. While you want to be generous, it is also important to keep in mind disasters and unforeseen circumstances that might come up, and to be consistent with your savings efforts.
2. Add a charity as a beneficiary
Whether you have a 401(k), IRA, 403(b) or otherwise, adding the charity (or charities) of your choice as beneficiaries to your account is a great way to put money aside for giving. The process is simple. All you’ll need to do is get in touch with your retirement plan holding company, request a change of beneficiary, and fill out the necessary paperwork. Keep in mind that if you are married, the approval of your spouse may be required for this as well. Once everything is complete, a portion of your retirement assets will pass directly through to the charities of your choice without any involvement or headache on your end
3. Give out of capital gains
If you hold shares of stock that have appreciated in value, you may want to consider giving the gift of shares rather than cash. Here’s why: when you donate shares, you won’t be charged standard capital gains taxes that can significantly reduce the take-home fruit of your investment. Instead, you can receive an income tax deduction for the current market value of the donated shares, regardless of how much you spent for them. Since charities can sell stocks tax-free, using this strategy can often mean you and your charity combined take home twice as much cash as a result of your giving than you would have otherwise.
4. Adjust your giving to match your income
In years that are especially good for you financially, consider giving a bit more to support your favorite causes. You’ll be doing good for your community, and enjoying some nice tax deductions—max. 60% of your adjusted gross income-—while you’re at it. Keep in mind, though, that you’ll only receive this 60% maximum deduction if you donate to a public company, which is why we recommend starting with a Donor Advised fund to get you going. These funds allow you to immediately reap the tax benefits of your donations while holding your money in the fund until you select the actual beneficiaries of your gift at a later date.
5. Gift IRA assets if you are 72+
Once you reach age 72, you have the option to donate up to $100,000 per year directly from your IRA account. As an added bonus, you won’t be charged taxes on the funds. Although this won’t qualify you for an income tax deduction, it will reduce your gross income for the year and also qualify towards the minimum annual distributions required for your retirement plan.
Whether you’re a business owner, retiree, or just want to do your part in giving back, there are many ways that charitable giving can be made into a rewarding part of your financial plan. Not only does giving make us feel good, it also provides immense benefits to the communities and people around us. With the right retirement planning and budgeting strategies you may be able to be philanthropic, if you are so inclined, and still maintain your retirement lifestyle.
For more information on how the Segrust Group can be a valuable resource to you in strategizing your retirement giving, contact us for a consultation today.