Ep. 130 – Considerations For Charitable Giving

Are you planning on setting up an effective giving strategy in your retirement plan?

Whether you’re already a charitably inclined person or are considering setting up a

giving strategy for your children or society at large, it’s essential to be aware of the

process, timing, and tax benefits of venturing into it.

In this episode of the Secure Your Retirement podcast, we talk about what you need

to consider while setting up a successful charitable giving strategy and whether or

not you should consider an annuity in your financial plan. We cover QCDs (Qualified

Charitable Distributions), the tax advantages of charitable giving, donating a portion

of your stocks to charity, and tips for effective retirement planning.

In this episode, find out:

● What is meant by QCDs (Qualified Charitable Distributions) and how they

help you make the most efficient use of money by providing a brilliant tax


● The advantages to charitable donations for 72+ -year-olds

● The lesser-known tax benefits of donating a portion of the stocks you hold to


● Why not to withhold taxes on the portion of the money you take from your

IRA for QCDs

● Why you need to plan your charitable strategy well in advance to incorporate

the processing time of the different parties involved (and how to do that


Tweetable Quotes:

● “Don’t wait till the last minute [to set up your charitable giving strategy],

because there is some organizing that needs to happen. The earlier you think

about it, the more you can think about how much you can do, or work with

someone to figure out how much you can do if you’re trying to do it on a

regular basis.– Radon Stancil

If you have a highly appreciated stock, which means if you sell it, you’re

going to pay capital gains tax on that. You may consider donating a portion of

that stock or that stock to the charity, which would obviously not cause a

taxable scenario for you as well.– Radon Stancil

If you’re already charitably inclined, big key things to remember is that you

have to have it taken care of by the end of the year.– Murs Tariq


If you are in or nearing retirement and you want to gain clarity on what questions you should be asking, learn what the biggest retirement myths are, and identify what you can do to achieve peace of mind for your retirement, get started today by requesting our complimentary video course, Four Steps to Secure Your Retirement!

To access the course, simply visit POMWealth.net/podcast.

Here’s the Full Transcript:

Radon:Welcome to Retirement in Action. Today we are going to talk about the issues that you should think about or consider when it comes to establishing a charitable giving strategy.  
 Now let me just say this right up front, we’re not telling you that you should be charitably inclined. This is really about the idea of how would you be, what would be the process? What are the advantages? What are things that you need to think about when it comes to that? We’re also going to talk a little bit about this idea of giving money to our children, in all essence gifting to them, certain amounts of money. What those limits are, why you would do it, what it means if you give more than what the annual limit is.  
 Let me just set this up this way. We talk about all the time our income breakdown, and we break income down into three areas. One, our essential needs. That has absolutely got to come in every single month, because that’s what we have to do to eat. That’s to pay the light bill, that’s to do the essential things that we have to have.  
 In addition to our central needs, we have our wants. Well, what do we want? We want to go on vacation. We want a new car. Maybe we want to renovate something in the house. Whatever it is, that kind of is in our wants category. Well, then we have a third category that we call legacy. Now legacy could be, I want to leave a certain amount of money to my children. Maybe I want to gift my children some money or my grandchildren some money while I’m alive.  
 And then there is charity. What if I want to give money to a charity? Whatever that type of organization is that I can be able to give to them. And there’s some tax advantages to do that, because I’m able to deduct some of that money off of the money that I would pay taxes on. So that’s good.  
 But we want to talk about just a couple different strategies. There’s a couple things that we want you to make sure you’re aware of and then how you would do it. Now one of the things that we get asked about more than we do, almost anything else when it comes to charitable giving, are what are called QCDs. Now I’m going to let Murs tell you what QCD stands for, how it works, how you would set it up, what would be the process, who you can give it to.  
Murs:Yeah. For starters, QCD stands for qualified charitable distribution. We see a lot of these happening, typically towards the end of the year, and I’m going to explain the idea behind it and the process as well.  
 And the idea is, let’s say you’re already charitably inclined, and this concept is really making the best use or making the most efficient use of your money. Let me just give you an example. Let’s say that you give $5,000 to a charity every single year. Your option is, I can take 5,000 out of the bank, or if you’re above 70 and a half and you have IRA money, pre-tax IRA money or traditional IRA money, then you now qualify for this QCD, qualified charitable distribution. And essentially what you can do is you can take a $5,000 withdrawal from your IRA and basically hand it over to the charity.  
 Well, what’s the difference here? What’s the advantage. Normally if you take $5,000 out of your IRA, you’re going to be fully taxed on that $5,000. You have not paid any taxes on that money yet. If you take $5,000 out of your bank, well, there’s no tax advantage there, you’re just giving up some cash that’s been sitting in the bank. With the QCD, that 5,000, provided you do it properly, will not be taxable. And so that is huge. If you’re going to give money anyways, there’s a huge advantage really to start using IRA money, provided that you’re over 70 and a half, to fund that charitable desire of yours.  
 Now when you turn 72, here’s another big advantage. When you turn 72, you now have to start taking required minimum distributions. And so maybe your required minimum distribution, the calculation ends up being that you need $20,000 to be removed from the account for that year because of the RMD. And you say, “Well, I don’t need $20,000. I don’t know to do with it.” But you’re forced to take the 20,000 out and you’re forced to pay the taxes on the 20,000.  
 Let’s go back to that scenario of you typically give 5,000 to charity. Well, that 20,000 will now be reduced to 15,000 if you do it properly by utilizing a QCD out of your IRA. Now I keep saying doing it properly, basically what it is, is first you got to know who you’re giving it to, and you got to go to your institution. Let’s say your IRA’s held at Schwab or it’s held at Fidelity or TD Ameritrade, wherever it is, you go to your institution and let them know that you would like to do a qualified charitable distribution.  
 Let them know that you want the check made out exactly how to make it out. You don’t want to make it out to yourself. If you do you, that voids the whole thing that you’re trying to accomplish. You want to make it out to the charity or the organization. And typically you’re going to want to include an EIN, that’s the employer identification number. You’re going to want to include the address of the charity. You have an option, you can have it sent directly to the charity, or you can have it sent to yourself and then you hand it over to the charity. And I think the advantage of that part is that you actually can go ahead and get whatever gift receipt that the charity is going to give you.  
 So QCDs are very powerful when it comes to a tax strategy if you’re already charitably inclined. Big key things to remember is that you have to have it taken care of by the end of the year. It’s not by your tax filing date, it’s by the end of the year. Also, the charitable organization has to cash it by the end of the year as well. So if they cash it on January one, well, it’s not going to apply to the previous year for you.  
 A couple moving parts there, but I think if you have questions about it, we’re happy to talk to you about it. We have clients that do this all the time. And it may seem a little complicated, but really isn’t. Just a couple steps and it can be very, very advantageous.  
Radon:Yeah. The key there is, what Murs was describing, is from a tax advantageous perspective because of that money having to be taxed.  
 There is one other one that you might consider, and that is if you have a highly appreciated stock, which means if you sell it, you’re going to pay capital gains tax on that. You may consider donating a portion of that stock or that stock to the charity, which that would obviously not cause a taxable scenario for you as well. That one we don’t see used as much, but if you’ve got it you’re going to want to talk to a tax planner, a CPA, a tax planner, and say, “Hey, if I do this, how will it affect me?”  
 And I want to just say that, I think we could talk about that for a minute. A lot of these things we do want to say, “Hey, okay.” The one that Murs just described, it’s pretty much easy to do. It’s a no-brainer, just don’t even put it on your tax return. But a lot of times if we’re looking at giving and we’re want to make sure that we get the best tax planning out of it, we need bring in a tax plan or a CPA that can help us think that through.  
 The other part of this is though, is a person might be looking at their overall plan. And if a person’s really charitably inclined, they might think, “Well, how much can I give? Can I give …” We see people come in all over the place. Somebody could put it in as a monthly thing, they want to make a monthly contribution to a charity. Or they look at it annually and say, “Hey, each year I’ve got these three charities, I want to give them money. But I don’t really have a good, clear vision for how much I can do in retirement.”  
 One of the things that we encourage people to have is a retirement focused financial plan. We think about financial planning, financial planning can be a lot different if you’re 25, 30, 40-years-old, because you’re looking at a lot of different things that a retiree wouldn’t look at. But what we would do is, and within that retirement focused financial plan, what we’re going to do is we can say, “Hey, what if you did give away,” whatever it is, $500 a month, $1,000 a month. Whatever it is, you give it away.  
 What does that do to your overall retirement plan when it comes to, can you afford it? Because that’s one of the things we have to think about is, is this going to … I would like to give this organization so much, whatever the amount is, but if I can’t afford to do it, well, then it’s probably not going to be a good thing to do, even if I get some tax advantages for doing so.  
 We can run scenarios. If you were talking with Murs and I and we were trying to walk you through that, we can sit right there with you, either on a Zoom meeting or in the office and have it on our screen. And right in front of you say, “You can do all the what-ifs you want.” What if I donate $2,000 a month, 1,000, 500, 250, whatever those scenarios are, we can run them. And then if we need to get into some of the tax issues, we can certainly bring in the CPA or the tax planner.  
 Murs, what have you seen be the most … I think you mentioned this a little bit, but are there any pitfalls that people need to think about, again, when it comes to any of these things. When it comes to taking money out of their accounts at a brokerage place like Schwab, TD Ameritrade, wherever they might be when it comes to these qualified charitable contributions, or any kind of thing that they’re going to do there. What are some things they might want to think through?  
Murs:Yeah, the biggest thing is just making sure that you’re doing it properly. Like I said, with the withdrawals, I mean, let’s say you’re in the habit of taking money out of your IRA. And I would say the majority of our clients, they take money out of their IRA and they withhold taxes when they do that.  
 If you’re deciding to do that QCD that I was talking about, you want to make sure that you’re not withholding taxes on that portion of the funds. Sometimes it may make sense to do it in two separate transactions, just to make it a little bit simpler, a little bit cleaner. And you withhold the taxes on the money that you’re going to put in your pocket, and then you don’t withhold the taxes that are eventually going to be reserved for the charity.  
 There’s that. And then really, again, it comes down to the timing of everything. It comes down to making sure that it’s filed properly. And so at the end of the day, when it comes to charitable giving, I think it’s like what Radon said. We need to think about it early, don’t wait until the last minute, because there is some organizing that needs to happen. The earlier you think about it, the more you can think about how much you can do. Or work with someone to figure out how much you can do, if you’re trying to do it on a regular basis.  
 And then also, if there needs to be a CPA or a tax advisor looped in, you have plenty of time to do that as well. So charitable giving can be very advantageous, but you want to think it through.  
Radon:The one thing … I’m sorry, I didn’t probably pose that question very clear, but let me just add this to what you just said because those were all important.  
 Talking about the last minute thing. If a person’s invested, whether it be in a mutual fund or a stock, as far as timing on that’s concerned. Somebody calls you up in the office and says, “Hey, I want to extend $10,000 to this charity.” I don’t care if it’s in an IRA or a brokerage account, whatever it might be. What’s that timing look like? Because if they call you up on December 25th-  
Radon:… and it’s Christmas and the stock market’s closed, I mean that could be a big problem.  
Murs:Yeah, yeah. If they call up, I mean, anywhere around December 20th, very likely it’s not going to happen in time. Because you’ve got holidays that are coming up where the market is closed, so there’s basically a period of time from when you sell something to when it is settled. It can be one day, it could be three days before it’s actually available to be used. So you have to incorporate that.  
 You also have to incorporate the custodian. The custodian could be that Schwab or that TD Ameritrade or the Fidelity. You have to incorporate their processing time as well. And then if it’s going by check, you got to incorporate the time of the postal service to be able to get that check out to you or directly to the charity. And then also, once the charity finally receives it, their time to actually get it to the bank. So if you start very late, I would go ahead and say it’s very difficult to make that possible.  
 If you’re thinking about QCDs or any type of gifting, I would start that process early and try to have it done by November. Just because there’s little baby steps that go on in the background that take some time.