Year-end is often considered the season of giving, but you don’t have to restrict your charitable efforts to a particular month.
When planning for financial independence in retirement, it’s not uncommon to incorporate your beliefs and values into the bigger financial picture. Giving to a meaningful cause like your church, alma mater, or local charity creates fulfillment while deepening personal gratitude.
If you’re inspired to give in retirement, it’s essential to do so in a conscious, tax-efficient manner. Strategizing your giving allows you to prepare your estate, consider tax advantages, and keep your loved ones informed of your wishes.
Below I’ve identified three philanthropic strategies women should consider during the retirement planning process.
Strategy #1: Research reputable organizations
Charitable giving is often essential for many retirees, but you should consider organizations carefully. From both an ethical and tax standpoint, where you donate your time and money matters. For example, you can only claim certain tax deductions if you contribute to a recognized 501(c)3 non-profit organization.
Independent resources like Charity Navigator, Charity Watch, and Guidestar can help retirees find more information on charities of interest. These sources can tell you how much money is actually put toward the cause and how transparent the organization is with its donors.
No matter who you give to, always save your receipts or proof of gifting. You’ll want to keep a clean record of who you gave to, when, how much, and what your history with that organization looks like.
When in doubt, consider giving to organizations you’re involved with personally or are familiar with in your community. The closer to home, the greater the chance you’ll be able to witness first-hand the impact of your gifts.
Strategy #2: Utilize above-the-line tax breaks
For the 2021 tax year, individual filers have a standard deduction of $12,550 or $25,100 for married filing jointly. If you’ve itemized in the past but are considering taking the standard deduction, you’re not alone. Since the 2017 tax reform, about 90% of people have filed using the standard deduction.1
If you do itemize your return, your eligible charitable contributions can be used to lower your taxable income for the year.
But if you’re taking the standard deduction, you still have an above-the-line tax benefit to consider.
The CARES Act of 2020 introduced an above-the-line deduction of up to $300 per individual filer for eligible charitable contributions. This deduction is again available to filers for the 2021 tax year. In addition, joint filters taking the standard deduction can take an above-the-line deduction of $600 for charitable contributions made this year.
While tax considerations may come second to the act of giving, these simple above-the-line deductions are an easy way to lower your taxable income without itemizing your tax return.
Strategy #3: Consider qualified charitable distributions (QCD)
A qualified charitable distribution, or QCD, is a withdrawal from your IRA custodian that’s paid directly to a qualifying charity. The account owner must be at least 70 ½ at the time the distribution is made, and there are specific rules and limitations to be aware of.
A QCD offers retirees some significant tax advantages, as eligible distributions do not count towards your taxable income for the year. A QCD can account for all or part of your required minimum distributions (RMDs), and you do not need to itemize your tax return to utilize QCDs. Making qualified charitable distributions to fulfill your RMDs can, effectively, kill two birds with one stone.
The maximum distribution amount per individual is $100,000 per year. This amount applies to one charity, or multiple, and spouses can gift up to $100,000 each, for a total of $200,000 per couple.
Other charitable thoughts
If giving to others is a priority in retirement, these suggestions can help get the ball rolling. There are many other strategies to consider with your financial partner, including donor-advised funds and charitable trust strategies.
My goal is to help you make the most of your generosity – both for the charities receiving your gifts and your financial well-being in retirement and beyond. To do so requires a closer look at your financial standing as a whole and a discussion regarding your personal values and goals.
At Wealthcare for Women, my goal is to create a holistic retirement strategy that encompasses the things that are most important to you. If you’re interested in working together to create a legacy of giving, schedule some time to talk.