Articles tagged with: charity

Making a Charitable Gift from Your IRA

Follow the rules, and you might get a big federal tax break.

Is your annual IRA withdrawal a bother? If you are an affluent retiree, that might be the case. The income is always nice, but the taxes that come with it? Not so much.

If only you could satisfy your yearly IRA withdrawal requirement minus the attached taxes. Guess what: there might be a way.

If you gift traditional IRA assets to charity, you could see some big tax savings. The Internal Revenue Service calls this a Qualified Charitable Distribution (QCD), and you may want to explore its potential. Some criteria must be met: you need to be at least 70½ years old in the year of the donation, the donation must take the form of a direct transfer of assets from the IRA custodian to the charity, and the charity must be “qualified” in the eyes of the I.R.S. Any 501(c)(3) non-profit organization meets the I.R.S. qualification, as do houses of worship.1

The amount you gift can be applied toward your Required Minimum Distribution (RMD) for the year, and you may exclude it from your taxable income. If you are retired and well-to-do, a charitable IRA gift could be a highly tax-efficient move.1,2

Just how much could you save? That depends on two factors: how much you gift, and your federal income tax bracket. As an example, say you are in the 35% federal income tax bracket, and you donate $40,000 from your traditional IRA to a 501(c)(3) non-profit organization. That $40,000 will be gone from your taxable income, and the donation will cut your federal tax bill for the year by $14,000 (as 35% of $40,000 is $14,000). Yes, the savings could be significant.2

You can donate as much as $100,000 to a qualified charity this way in a single year. That limit is per IRA owner; if you are married, and you and your spouse both have traditional IRAs, you can each donate up to $100,000.1,2

What about the fine print? There is plenty of that, and it is all worth reading. You may be curious if you can make a QCD from a SIMPLE or SEP-IRA; the answer is no. You can make a QCD from a Roth IRA, but there is little point in it: Roth IRA withdrawals are commonly tax-free.1

Regarding the asset transfer, the critical detail is that you cannot touch the money. The distribution must be payable directly to the non-profit organization or charity, not to you. (Income tax does not need to be withheld from the distribution since the amount withdrawn will not count as taxable income.) In addition, your tax preparer must identify the distribution as a QCD on your federal tax return. This is crucial and must not be overlooked, because the custodian of your IRA will probably report your QCD as a normal IRA distribution.2

If you itemize your deductions, you should know that a charitable IRA gift does not count as a deductible charitable contribution. (That would amount to a double tax break.) Of course, fewer taxpayers have incentive to itemize now, since the standard deduction is so large, thanks to the Tax Cuts & Jobs Act.1,2   

If you want to make a charitable IRA gift, start the process before the year ends. If you try to make the gift in late December, your IRA custodian might not be able to move fast enough for you, and the asset transfer may occur later than you would like (i.e., after December 31). Talk with a tax or financial professional before the year ends, so that you can plan a charitable IRA donation with some time to spare.

Mike Moffitt may be reached at 641-782-5577 or mikem@cfgiowa.com

Website: www.cfgiowa.com

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Securities and Registered Investment Advisory Services offered through Silver Oak Securities, Inc., Member FINRA/SIPC. Silver Oak Securities, Inc. and Cornerstone Financial Group are separate entities.

Citations.

1 – thebalance.com/qualified-charitable-distributions-3192883 [1/15/18]

2 – marketwatch.com/story/how-retirees-can-save-on-charitable-donations-under-the-new-tax-bill-2018-03-02 [3/2/18]

 

Year-End Charitable Gifting

What should you keep in mind as you donate?

Are you making charitable donations this holiday season? If so, you should know about some of the financial “fine print” involved, as the right moves could potentially bring more of a benefit to the charity and to you.

To deduct charitable donations, you must itemize them on I.R.S. Schedule A. So, you need to document each donation you make. Ideally, the charity uses a form it has on hand to provide you with proof of your contribution. If the charity does not have such a form handy (and some charities do not), then a receipt, a credit or debit card statement, a bank statement, or a cancelled check will have to suffice. The I.R.S. needs to know three things: the name of the charity, the gifted amount, and the date of your gift.1

From a tax planning standpoint, itemized deductions are only worthwhile when they exceed the standard income tax deduction. The 2017 standard deduction for a single filer is $6,350. If you file as a head of household, your standard deduction is $9,350. Joint filers and surviving spouses have a 2017 standard deduction of $12,700. (All these amounts rise in 2018.)2

Make sure your gift goes to a qualified charity with 501(c)(3) non-profit status. Also, visit CharityNavigator.org, CharityWatch.org, or GiveWell.org to evaluate a charity and learn how effectively it utilizes donations. If you are considering a large donation, ask the charity involved how it will use your gift.

If you donated money this year to a crowdsourcing campaign organized by a 501(c)(3) charity, the donation should be tax deductible. If you donated to a crowdsourcing campaign that was created by an individual or a group lacking 501(c)(3) status, the donation is not deductible.3

How can you make your gifts have more impact? You may find a way to do this immediately, thanks to your employer. Some companies match charitable contributions made by their employees. This opportunity is too often overlooked.

Thoughtful estate planning may also help your gifts go further. A charitable remainder trust or a contract between you and a charity could allow you to give away an asset to a 501(c)(3) organization while retaining a lifetime interest. You could also support a charity with a gift of life insurance. Or, you could simply leave cash or appreciated property to a non-profit organization as a final contribution in your will.1

Many charities welcome non-cash donations. In fact, donating an appreciated asset can be a tax-savvy move.

 You may wish to explore a gift of highly appreciated securities. If you are in a higher income tax bracket, selling securities you have owned for more than a year can lead to capital gains taxes. Instead, you or a financial professional can write a letter of instruction to a bank or brokerage authorizing a transfer of shares to a charity. This transfer can accomplish three things: you can avoid paying the capital gains tax you would normally pay upon selling the shares, you can take a current-year tax deduction for their full fair market value, and the charity gets the full value of the shares, not their after-tax net value.4

You could make a charitable IRA gift. If you are wealthy and view the annual Required Minimum Distribution (RMD) from your traditional IRA as a bother, think about a qualified charitable distribution (QCD) from your IRA. Traditional IRA owners age 70½ and older can arrange direct transfers of up to $100,000 from an IRA to a qualified charity. (Married couples have a yearly limit of $200,000.) The gift can satisfy some or all of your RMD; the amount gifted is excluded from your adjusted gross income for the year. (You can also make a qualified charity a sole beneficiary of an IRA, should you wish.)4,5

Do you have an unneeded life insurance policy? If you make an irrevocable gift of that policy to a qualified charity, you can get a current-year income tax deduction. If you keep paying the policy premiums, each payment becomes a deductible charitable donation. (Deduction limits can apply.) If you pay premiums for at least three years after the gift, that could reduce the size of your taxable estate. The death benefit will be out of your taxable estate in any case.6

Should you donate a vehicle to charity? This can be worthwhile, but you probably will not get fair market value for the donation; if that bothers you, you could always try to sell the vehicle at fair market value yourself and gift the cash. As organizations that coordinate these gifts are notorious for taking big cuts, you may want to think twice about this idea.7

You may also want to make cash gifts to individuals before the end of the year. In 2017, any taxpayer may gift up to $14,000 in cash to as many individuals as desired. If you have two grandkids, you can give them each up to $14,000 this year. (You can also make individual gifts through 529 education savings plans.) At this moment, every taxpayer can gift up to $5.49 million during his or her lifetime without triggering the federal estate and gift tax exemption.8

Be sure to give wisely, with input from a tax or financial professional, as 2017 ends.

Mike Moffitt may be reached at ph# 641-782-5577 or email: mikem@cfgiowa.com

Website: www.cfgiowa.com           

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial.

Citations.

1 – tinyurl.com/y8dkleed [8/23/17]

2 – forbes.com/sites/kellyphillipserb/2017/10/19/irs-announces-2018-tax-brackets-standard-deduction-amounts-and-more/ [10/19/17]

3 – legalzoom.com/articles/cash-and-kickstarter-the-tax-implications-of-crowd-funding [3/17]

4 – irs.gov/retirement-plans/retirement-plans-faqs-regarding-iras-distributions-withdrawals [8/17/17]

5 – pe.com/2017/11/04/its-not-that-hard-to-give-cash-or-stock-to-charity/ [11/4/17]

6 – kiplinger.com/article/taxes/T021-C032-S014-gifting-a-life-insurance-policy-to-a-charity.html [11/17]

7 – foxbusiness.com/features/2017/10/18/edmunds-what-to-know-about-donating-your-car-to-charity.html [10/18/17]

8 – law.com/thelegalintelligencer/sites/thelegalintelligencer/2017/11/02/with-2018-fast-approaching-its-time-for-some-year-end-tax-planning-tips [11/2/17]

Fall Financial Reminders

Here are some important things to note as the year comes to a close.

 As every calendar year ends, the window slowly closes on some notable financial deadlines and opportunities. Here are several to keep in mind before 2016 arrives.

Don’t forget that IRA RMD. If you are older than age 70½ and own one or more traditional IRAs, you have to take your annual IRA required minimum distribution (RMD) by December 31. If you are being asked to take your very first RMD, you actually have until April 1, 2016 to take it – but your 2016 income taxes may be substantially greater as a result. (Note: original owners of Roth IRAs never have to take RMDs from those accounts.)1

Did you recently inherit an IRA? If you have and you weren’t married to the person who started that IRA, you must take the first RMD from that IRA by December 31 of the year after the death of that original IRA owner. You have to do it whether the original account is a traditional IRA or a Roth IRA.2

You might want to divide that inherited IRA into multiple inherited IRAs before New Year’s Eve, thereby promoting a lengthier payout schedule for younger inheritors of those assets. This move must be made by the end of the year that follows the year in which the original IRA owner died. Otherwise, any co-beneficiaries receive distributions per the life expectancy of the oldest beneficiary. Check with the IRA custodian to see if it will permit this.2

Can you contribute more to a 401(k), 403(b), 457 or TSP plan? You have until December 31 to boost your 2015 contribution. This year, the contribution limit on both plans is $18,000 for those under 50, $24,000 for those 50 and older.3

Can you do the same with your IRA? The traditional and Roth IRA contribution limit for 2015 is $5,500 for those under 50, $6,500 for those 50 and older. (You must have employment compensation to make IRA contributions.) Some taxpayers earn too much to make Roth IRA contributions – above $131,000 AGI, an individual filing as single or head of household can’t make a Roth contribution for 2015, and neither can joint filers with AGI exceeding $193,000.4

Ever looked into a Solo(k) or a SEP plan? If you have self-employment income, you can save for the future using a self-directed retirement plan, such as a Simplified Employee Pension (SEP) plan or a Solo 401(k). You don’t have to be exclusively self-employed to set one of these up – you can work full-time for someone else and contribute to one of these while also deferring some of your salary into the retirement plan sponsored by your employer. Contributions to SEPs and Solo 401(k)s are tax-deductible. December 31 is the annual deadline to set one up, and if you meet that deadline, you can make your contributions for the current year as late as April 15 of next year.5

You can contribute up to 25% of your net self-employment income to a SEP for 2015 – up to $53,000. For a Solo 401(k), the same $53,000 limit applies – but you can reach it by contributing a mix of Roth or pre-tax salary deferrals and up to 25% of your net self-employment income (20% if your business is an LLC or sole proprietorship). You are allowed to defer up to $18,000 in salary and up to 20%/25% of net self-employment income into a Solo 401(k) for 2015, and up to $24,000 and up to 20%/25% net self-employment income if you are 50 or older. (If you contribute to another employer’s 401(k) plan, the sum of your employee salary deferrals plus your Solo(k) contributions can’t be greater than the aforementioned $18,000/$24,000 limits.)5,6

Do you need to file IRS Form 706? If you are wealthy and your spouse passed away in 2015, this may be necessary. Executors of estates use Form 706 to notify the IRS of the size of an estate. If a gross estate and adjusted taxable gifts of a decedent exceed the estate tax exemption (currently $5.43 million), the executor of that estate must file Form 706 after the decedent’s passing. If the decedent’s gross estate and adjusted taxable gifts are less than the estate tax exemption, Form 706 should be filed anyway to show the IRS that the unused portion of the decedent’s estate tax exemption may be carried over to the surviving spouse. A new IRS rule says that executors filing returns after July 31, 2015 for estates exceeding the estate tax exemption must inform both heirs and the IRS about the value of certain types of assets so that tax won’t be underreported should these assets be sold. (See your tax advisor for details.)7,8

Are you feeling generous? You could gift appreciated securities to charity before 2015 ends – you may take a charitable deduction for them on your 2015 1040 form and avoid capital gains taxes on the shares. You may want to gift a child, relative, or friend – a single taxpayer can gift up to $14,000 this year to as many other individuals as desired, and a couple may jointly gift up to $28,000 to as many individuals as they wish. Just remember the current $5.43 million/$10.86 million lifetime exemption.3

Mike Moffitt may be reached at ph# 641-782-5577 or email mikem@cfgiowa.com

Website: www.cfgiowa.com

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

   Citations.

1 – fool.com/investing/general/2015/09/29/mrd-requirements-for-your-retirement-accounts.aspx [9/29/15]

2 – retirementwatch.com/IRASample1.cfm [10/13/15]

3 – cnbc.com/2015/09/12/its-time-to-maximize-those-year-end-investment-moves.html / [9/12/15]

4 – 401k.fidelity.com/public/content/401k/home/vpcontributionlimits [10/13/15]

5 – kiplinger.com/article/saving/T047-C001-S003-retirement-plans-for-self-employed-workers.html [9/9/14]

6 – irafinancialgroup.com/solo401kcontributionlimits.php [10/13/15]

7 – finance.zacks.com/must-file-irs-form-706-9433.html [10/13/15]

8 – tinyurl.com/nmjdd96 [8/7/15]