This article was published in the December 2023 issue of the Traverse City Business News and can be read in its entirety below. Black Walnut Wealth Management contributes articles and is featured in various media outlets.
If you’re like us, you recognize that the world extends far beyond the lines of your immediate family, and perhaps you hope to make a lasting impact on others. But wouldn’t it make the most sense if you could help yourself while at the same time helping others? Let’s explore a few strategies to save more money while gifting to your favorite causes.
Set Up a Donor-Advised Fund
This is a strategy that isn’t put into play often enough, quite likely because many people don’t know about it. A DAF acts as a philanthropic savings account. You put money into it for the purpose of giving to charity and let it sit there until you are ready to give. Unlike a savings account, though, all contributions are irrevocable. Once you put an asset into a DAF, you can’t take it back.
Because you can’t take back your contributions, they are considered complete charitable gifts and immediately tax-deductible. You can take the tax deduction right away even if you wait several years to pass the money on to charity. Though you don’t technically retain ownership when you put money or assets into a DAF, you are still able to guide, request, and recommend where the money goes. You get to name your DAF account, advisors, successors, and beneficiaries, and the holder of the DAF makes the ultimate decision on where the funds go. If you’re worried about relinquishing the reins on your money, know that most DAF holders will honor donor wishes as long as the recommendation complies with legal and tax requirements and grant-making policies.
Donate Your RMD Using a QCD
Did you know you can support charitable causes using funds from your IRA? If you’re 70½ or older, you may have the option to donate all or part of your required minimum distribution (RMD) directly to a charity. It’s called a qualified charitable distribution (QCD). Even before reaching the RMD age, you can make charitable distributions from your IRA. While the Secure Act raised the RMD age for individuals to 73, the QCD age remains at 70½.
Here’s how they work: RMD distributions necessitate withdrawing a specific percentage each year, ensuring the government collects income taxes on those funds. This presents an opportunity to optimize your charitable giving. If you don’t require the funds from your IRA and had planned to make charitable donations anyway, you can opt for a qualified charitable distribution.
Additionally, using a qualified charitable distribution (QCD) as part of your strategy enables you to donate directly from your IRA to a qualified public charity, bypassing the need for it to be considered a taxable distribution. By doing so, you can exclude the donated amount from your taxable income, providing potential tax benefits for your philanthropic endeavors. It offers the advantage of donating up to $100,000 tax-free, which means not only does this result in tax savings, but by avoiding the RMD, your income will remain lower for Medicare calculations, potentially preventing a rise in your premiums.
You also have the option to donate all or a part of your RMD to charities. For instance, if your RMD is $5,000, you can choose to give $3,000 to a charity and keep $2,000 for yourself, only paying taxes on the $2,000. Alternatively, you can decide to donate the entire $5,000 to charity, which means you won’t owe any taxes on your RMD for that year.
The main benefits of this strategy include:
- You have the ability to fulfill your RMD without increasing your taxable income.
- You don’t have to itemize deductions to enjoy the tax benefits of a QCD.
- QCDs maximize the impact you make on charitable causes.
You can simplify your QCD donation experience with the convenience of online tools provided by certain charitable organizations. By leveraging QCDs, you not only contribute to the causes that matter to you, you also navigate your tax obligations intelligently.
Work With a Professional
We understand that giving to charity is a top priority for you. You’re going to give regardless, so why not do so in the most efficient way possible?
Eric Braund is the Founder and Chief Financial Officer at Black Walnut Wealth Management, a financial advisory firm providing financial counsel and fiduciary investment services to individuals, families, and private foundations throughout the Traverse City and Northern Michigan region. He is a CERTIFIED FINANCIAL PLANNER™ professional and a Chartered Retirement Planning Counselor℠ with 25 years of experience. He also has a bachelor’s degree in finance from Hillsdale College. Eric is passionate about offering services that are rooted in hard facts and sound reasoning combined with meaningful, long-term relationships so that his clients can experience less stress and have more time and energy to invest in what they love.
Eric is a Northern Michigan native and you can often find him enjoying all that the area has to offer, including hiking, biking, swimming, skiing, volleyball, and boating. He loves spending time with his family—his wife, Jodi, and his two children—and maintaining a balanced life. To learn more about Eric, connect with him on LinkedIn.