As you approach retirement, thoughts of giving back and leaving a legacy become increasingly important. For many philanthropists, it simply feels like the right thing to do. Giving not only benefits the causes you care about, but as a retiree, can also provide significant tax advantages.
For retirees, strategic giving can be an effective way to maximize the impact of your wealth while ensuring a fulfilling retirement. In this blog, we’ll explore how to give, where to give, and the tax benefits of charitable contributions during retirement.
How to Give: Methods of Philanthropy
Strategic philanthropy begins with understanding the various methods available for giving. There are simple ways, such as cash donations or Qualified Charitable Distributions(QCD). More complex options such as Donor-Advised Funds (DAFs). Or leaving a bequest in your estate plan.
Donating cash to charities during the year is a simple way to meet your charitable endeavors. You just need to ensure to keep records of these gifts to support any tax deduction and confirm that the charity is a qualified 501(c)(3) charity. Cash donations of more than $250, the IRS requires you to obtain a written letter of acknowledgment from the charity.
Another option for people over the age of 701/2 is a Qualified Charitable Distribution (QCD). In this situation an IRA account holder requests the distribution from the custodian holding their IRA. The custodian will make a check payable to the charity and either send it directly to the charity or to the IRA holder to deliver to the charity. Each eligible individual can make up to $108,000 QCD for 2025. This amount is adjusted annually for inflation going forward so be sure to check on current year limits in the future.
Donor-Advised Funds (DAFs) are a popular choice, allowing you to make a charitable contribution and receive an immediate tax deduction. A DAF is essentially an investment account that you fund, with the sole purpose of using the funds for charitable giving. The funds grow tax-free in this tax-advantaged account.
For some, those who are worried about running out of funds during their lifetime could utilize another powerful way to support an organization and that is through legacy giving. By including a charity, church, university, or other cause in your will or estate plan, you can ensure that your values and passions live on.
Where to Give: Choosing the Right Causes
Choosing the right cause is a personal decision that reflects your values and passions. Consider organizations and people that personally impacted your life. The options are endless when it comes to choosing what initiatives or causes you want to support. Here is a short list of some ideas:
- Alma Mater.
- Church or other religious affiliation.
- Research for an illness that impacted you, a friend or family member.
- Local charities:
- Food banks
- Shelters
- Animal support
The list is endless and is really a personal decision.
Tax Benefits of Giving: Optimizing Your Contributions
Strategic giving during retirement comes with significant tax benefits. Contributions to qualified charitable organizations can reduce your taxable income, potentially lowering your tax bracket and resulting in substantial tax savings. Here are a couple of examples how charitable giving can help with your taxes.
Example Donor-Advised Funds (DAF):
In your last year of work, you are in a higher tax bracket. You are and have been charitably inclined and would like to continue with your charitable support in the future. This may be a good year to establish a DAF. When you put funds into a DAF it is deemed to be a completed gift to charity and you receive a deduction for your income tax return. You can not take the funds back. The funds are invested in a portfolio that you are comfortable with. The funds will grow and you do not have a requirement to make any donations from the DAF until you wish to. Then a couple of years down the road you could then start using the DAF to make donations to your favorite charities. You will not receive a tax deduction the year you make the donation to the charity since you already did when you put the funds in the DAF. This may work to your benefit since you received the tax deduction when you were in a higher tax bracket than if you waited until you gave the funds to the charity.
Example Qualified Charitable Distribution (QCD):
When you turn 73 or 75, depending on your birthday, your required minimum distribution will start. For some people they don’t need all of the RMD for their spending needs and are charitably inclined. Let’s say that your RMD is $30,000 and you normally give $2500 to your church annually. You could choose to do a $2500 QCD to your church, which will reduce your taxable IRA distribution by $2500. This distribution may keep you from phasing out of other deductions or pushing yourself into a higher income bracket that results in being means tested for Medicare.
Partnering with a Financial Advisor
Philanthropy is a powerful way to give back and make a lasting impact, especially during retirement. By strategically choosing how and where to give, and understanding the tax benefits, you can maximize the effectiveness of your contributions.
Partnering with one of our knowledgeable fee-only financial advisors in Delaware or Pennsylvania can provide personalized guidance tailored to your philanthropic goals. At Foundation Wealth Management, we are committed to helping you achieve a fulfilling and impactful retirement through strategic giving. Contact us today to start planning your legacy of generosity.
About Foundation Wealth Management
Foundation Wealth Management is a CPA-led organization, that provides financial planning services and tax planning support; services and outcomes vary based on each client’s circumstances. Our team includes qualified professionals, such as CPAs and CFP®s, who are integral to our service offerings. Our team includes 3 Certified Financial Planners: Burt Hutchinson, CPA, CFP®, Paul LaViola, CFP®, and Stephen McDade, CFP®.
As Fee-Only planners, we are compensated directly by clients rather than through commissions from brokerage or insurance products, which we believe helps align our services with client goals.
Disclosure Statement:
This presentation is not an offer or a solicitation to buy or sell securities. The information contained in this presentation has been compiled from third-party sources and is believed to be reliable; however, its accuracy is not guaranteed and should not be relied upon in any way whatsoever. This presentation may not be construed as investment, tax, or legal advice and does not give investment recommendations. Any opinion included in this report constitutes our judgment as of the date of this report and is subject to change without notice. All investments are subject to risk, including the possible loss of principal.
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