One of the main concerns about giving to charity today is whether you’ll need the money tomorrow.
According to a 2016 study by US Trust, giving back is a priority for many wealthy people—74% reported donating financially to a non-profit. Respondents also chose to invest in companies that share their values and volunteered their time or services to organizations.
Once your wealth significantly exceeds your needs, it’s easier to feel comfortable giving it away. But what if you aren’t so sure?
There are ways for everyone to give to the charities they care about. Just plan your gift for the future, when you are sure you won’t need it. This common practice is called planned giving, and you can do it through your IRA.
There are a couple of ways you can plan future gifts using your IRA. You can either use your required minimum distribution or simply name the charity as one of the beneficiaries of your IRA.
Donating Through Your Required Minimum Distribution
On April 1 following the year you turn 70½, you need to take a minimum distribution from your traditional IRA (though not a Roth). In other words, you have been deferring the taxes on this account for years, and the I.R.S. essentially says, “Enough! It’s time to start taking some of that money out and paying taxes on it.”
You can do something else though—give some or all of that distribution to charity. This is called a Qualified Charitable Distribution. You can give your required minimum distribution (up to $100,000 per year) directly to the charity of your choice without having to pay taxes on it. It’s like a charitable IRA transfer! Your IRA provider can handle it for you. (As with any tax move, check with your tax advisor first, of course.)
By the time you are 70½, you will know whether you’ll need the funds from your IRA distribution or not. What if you don’t want to give it all to charity? That’s not a problem, you can give what you like to your charity directly from your IRA and ask your provider to send you the rest of the required minimum distribution. Just make sure you withdraw the minimum, as the penalty is 50% on however much of the required amount you didn’t withdraw.
Naming A Charity As A Beneficiary.
You can name your favorite charity as a beneficiary on your IRA. For example, you could leave 75% of the value of the account to your spouse or children and 25% to charity when you pass away.
If you want to donate funds when you are over 70½ or leave funds to a charity when you pass away, the traditional IRA is a great vehicle to use. Since the charity (if it’s a 501(c)3) is tax exempt, the entire gift goes to the charity.
If this strategy interests you, talk with both your charity’s planned giving department and your financial advisor. Even if you are cautious about giving today, you can feel great about giving tomorrow.
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