While most taxpayers will benefit from reduced tax rates and expanded tax brackets under the new tax laws, many will elect not to itemize this year. Rather, they will opt to claim the higher standard deduction and that may include you.
With that in mind, here are creative charitable-giving solutions that allow you to take advantage of the higher standard deduction, while also avoiding taxes on qualified amounts you are required to take as an RMD from your Individual Retirement Account.
Now permanent under tax law, individual taxpayers (and qualified spouses) age 72 or older, can direct distributions, called Qualified Charitable Distributions (QCDs), from traditional IRAs to eligible charitable organizations. If you are subject to the Required Minimum Distribution (RMD) rules, amounts distributed as QCDs count toward your RMD. Thus, taxpayers can avoid the tax bite on QCDs with no effect on taxable income. The net result is you can take advantage of the higher standard deduction and avoid taxes on QCD amounts. It’s a win-win-win strategy that works.
By law, QCDs cannot be made to private foundations or donor advised funds.
However, iGiftFund offers charitable fund solutions that do qualify.
And, your financial advisor can manage the investments in these funds.
The net result is you can take advantage of the higher standard deduction and avoid taxes on QCD amounts. It’s a win-win-win strategy that works.
Designated Fund – At the time you establish your fund, you specify:
- the charity or charities you intend to support and
- the formula that determines the amount for annual grant making.
Your fund can support your favorite charities (i.e., church, hospital, university, etc.) It can also be used to establish a scholarship program at your high school or college.
Field-of-Interest Fund – You specify up front your philanthropic area of interest, i.e. arts and culture, health, the environment, education, etc. iGiftFund’s Board decides annually which charity or charities best fit your chosen field-of-interest.
Unrestricted Fund – You leave the decision for grantmaking to iGiftFund’s Board to address the changing needs of the community, typically in collaboration with your recommended community foundation which understands the needs of the community.
What are the advantages to these solutions?
- Create a designated, field-of-interest or unrestricted fund in your name or that of a loved one as an enduring legacy
- Receive Qualified Charitable Distributions (QCDs) from IRAs and satisfy required minimum distributions requirements (RMDs) with no effect on Adjusted Gross Income (AGI)
- Contribute a wide variety of asset types
- Enjoy the best available tax benefits
- Recommend your trusted financial advisor to manage investments in open architecture on your familiar investment platform
- Add to the fund as desired
- Retain an option in a designated fund to redirect support should the specified charity cease to exist
About the Author
An early pioneer of donor advised funds, Philip T. Tobin is CEO of the Hudson, Ohio-based iGiftFund, a national, independent sponsor of donor advised funds he co-founded in 2017. Formerly CFO for the Cleveland Foundation and co-founder of the American Endowment Foundation (which grew by 2016 to become the 21st largest charity in the country),
Phil is dedicated to creating unique experiences for donors and financial advisors.
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