This is the season of list-making.
Not for Santa but for our favorite charities.
Donors give in ways that suit their circumstances, their values and their abilities. Whether your gifts are cash, volunteer hours, expertise or planned giving options, nonprofits value and welcome your support, especially during these trying times.
Make an Enduring Difference
Many people understand the benefits of giving to their favorite charities through their IRA. But some might not know about using this powerful tool to leave a lasting legacy while potentially optimizing tax benefits.
The practice of designating an Individual Retirement Account (IRA) for charitable donations is gaining traction among savvy philanthropists.
This strategic approach not only supports worthy causes, it also enables donors to minimize tax implications and maximize the impact of their charitable giving.
Many donors are leaving this type of IRA to their grandchildren so they can instill charitable values and continue the family philanthropy practice. A donor can create as many IRAs as they wish.
“Younger generations, especially millennials and GenZ, are driven by purpose and want to align their assets and their actions with their personal values to make a positive impact on our world,” said Hannah Shaw Grove, chief marketing officer for Foundation Source.
“We see distinct differences in each generation’s priorities for philanthropy. The founders are more focused on building and preserving their legacies while younger family members are more passionate about advancing a mission and creating social impact.
“The beauty of philanthropy is that it can meet all of these objectives.”
Create a Family Plan
Many donors find it helpful to hold family meetings so everyone can contribute their ideas about charitable giving preferences. Each family member is encouraged to identify their philanthropic motivations and priorities.
Some families create their own mission statement, inviting each member to contribute their thoughts and to identify what they hope to accomplish through their charitable giving.
Some grandparents give annual donations to their grandchildren’s favorite charities, and choose grandchildren and relatives with a low-income as beneficiaries of their IRAs.
Some families focus on education and healthcare while others may be more interested music and the arts. Still others are concerned with the work of human services organizations like food banks, elder care, or child abuse prevention.
Depending on the size and composition of the family unit there may be multiple areas of philanthropic interest woven into the family mission statement.
When making a list of which charities will receive your contributions, ask yourself these three questions:
- Is their mission in line with my personal values?
- Is the organization financially and programmatically stable?
- Are they making a difference in our community?
“Noozhawk’s Guide to Giving is a treasure trove of local nonprofits who welcome donations,” said publisher Bill Macfadyen. “It highlights local nonprofits and is active all year long to encourage charitable giving throughout the year.”
Understand Charitable IRA distributions
Traditional IRAs are tax-deferred retirement savings accounts, meaning contributions are made with pre-tax dollars, and taxes are typically paid upon withdrawal.
However, the Internal Revenue Service offers a provision known as the Qualified Charitable Distribution, which allows individuals aged 70½ or older to donate up to $108,000 annually from their IRA directly to qualified charitable organizations without incurring income tax on the distribution or including the donations in their adjusted gross income.
Incorporating a trust into your estate plan adds an extra layer of control and flexibility, particularly when it comes to distributing assets to beneficiaries.
Use the Advantages of Charitable IRAs
- Tax Efficiency: Donating IRA assets directly to charity can result in significant tax savings. By avoiding income tax on the distribution and potentially reducing estate taxes, donors can allocate more funds to charitable causes without diminishing the value of their estate.
- Legacy Preservation: Using an IRA for charitable donations allows individuals to leave a meaningful legacy that reflects their values and philanthropic priorities. By supporting charitable organizations or causes close to their hearts, donors can make a lasting impact on their communities and beyond.
- Flexibility and Control: IRA contributions offer flexibility in structuring charitable gifts, allowing donors to tailor their philanthropic strategies along with their overall estate planning goals. Whether seeking to provide ongoing income to beneficiaries or making a significant one-time contribution, IRAs provide a customizable framework for charitable giving.
Consider Professional Guidance
Before implementing a strategy involving IRA assets and charitable giving, it’s wise to consult with experienced estate planning professionals, including attorneys, financial advisors, and tax specialists.
For example, the Santa Barbara Foundation can provide personalized guidance based on your unique circumstances, objectives and philanthropic aspirations.
“At the Santa Barbara Foundation, we believe that strong connections build stronger communities and by mobilizing charitable giving and connecting expertise, we can create lasting change together,” said Jackie Carrera, its president and CEO.
“Donors who contribute to the Community Engagement Fund make it possible for the Santa Barbara Foundation to be nimble, responsive, and innovative to address the evolving needs in our communities, particularly given the recent impact of federal funding cuts.”
In a Nutshell
Designating an IRA held for charitable donations presents a compelling opportunity for individuals seeking to make a meaningful impact while optimizing tax benefits and preserving their legacy.
By leveraging the tax advantages of Qualified Charitable Distributions, donors can support charitable causes with greater efficiency, purpose and foresight.
Embracing this innovative approach to philanthropy empowers individuals to leave a lasting imprint on the world, enriching lives and communities for generations to come.