Any experience with charitable gift accounts?

[ziggy29]

This is something I've been thinking about a lot more recently for tax purposes.

We never itemize, seeing as we have a small, low-value home owned free and clear (no mortgage interest deduction, low property taxes) and no state income tax. Even after adding in all of our charitable contributions for the year, it's not enough (usually) to itemize and "write off" our donations.

Seems really tax inefficient. I've kicked around the idea of opening a charitable gift account with (say) $10-20K right off the bat once my wife starts her new career in ministry. That would almost all be deductible in the year it was contributed, and then I'd use that trust to periodically send money to the charities we support as well as to our church. At the same time I'd be saving more money in a taxable account or savings, planning to "reload" the trust in a later year when there's enough to produce real tax savings.

Does anyone have experience with these? Any particularly good ones or bad ones to stay away from? I'm familiar with the one Schwab runs, seeing as I'm already a Schwab client, and I've seen the Vanguard version which seems to have a very similar fee structure (though Vanguard's fund options have slightly lower fees).

Any other gotchas to wonder about? (And yes, I know they are irrevocable.)

I'm just thinking that it's time we let our donations go a little farther, because I've not been able to deduct one cent of them since we moved into a paid-for house.

 

[audreyh1]

Hopefully Nords will respond soon. He uses these I think.

We also consider this. We've had trouble meeting criteria where we can actually deduct our donations, plus in the last few years we've been giving money to family instead.

I think we would use a Fidelity account.

Audrey

 

[ziggy29]

We also consider this. We've had trouble meeting criteria where we can actually deduct our donations, plus in the last few years we've been giving money to family instead.

I think we would use a Fidelity account.

Yeah, it's kind of a bummer looking at the last 3-4 years of tax returns and looking at how much we've given on the worksheet and yet have not been able to deduct a cent. It's not *why* we give, of course, but it still seems that if I can arrange a way to get the deduction while doing the same level (or more) of giving, why not?

So far I've looked at Fidelity, Vanguard and Schwab. All have the same basis fee structure for small accounts: 0.6% a year with an overriding $100 annual minimum. (Yeah, I know, but compare that to getting *no* tax writeoff in the 25% bracket.) Vanguard requires a minimum that's too high ($25K) -- the others have a $5K minimum to open. Both Fidelity and Schwab have reasonably suitable balanced or growth-and-income fund options which would probably be our investment choice.

 

[FIREd]

I am using the Fidelity Charitable Gift Fund. The Vanguard fund had a high initial minimum ($25K?), so I decided to go with Fidelity. So far I am very happy with it. The administrative fee is not trivial though, especially on small balances. Making contributions and distributions is a very simple, straight forward process.

 

[ziggy29]

The administrative fee is not trivial though, especially on small balances.

Yeah, I know. Under normal circumstances it would be a potential deal-breaker for me. But in *this* case, assuming I put in $10K to start I wouldn't let a $100 annual fee stop me if it means being able to reduce taxes by almost $2,500...

 

[FIREd]

The tax break is only good for one year and the fee is annual, so unless you grant all the money quickly, the fees will compound. But, for me, it was still acceptable.

 

[ziggy29]

The tax break is only good for one year and the fee is annual, so unless you grant all the money quickly, the fees will compound. But, for me, it was still acceptable.

True. It depends on how often you'll "turn over" the contributions. Someone not tapping it often won't be helped much. But if annual donations are usually well into the thousands per year, the math still makes good sense.

 

[LOL!]

Since you don't itemize, any way to bunch deductions into every other year?

For example, we can pay 2009 property taxes on Jan 4, 2010 and 2010 property taxes on Dec 30, 2010 which gives us 2 years of prop tax deduction in 2010. Then do not pay prop taxes again until Jan 4, 2012 and Dec 30, 2012.

Do the same with charitable deductions.

 

[ziggy29]

Since you don't itemize, any way to bunch deductions into every other year?

For example, we can pay 2009 property taxes on Jan 4, 2010 and 2010 property taxes on Dec 30, 2010 which gives us 2 years of prop tax deduction in 2010. Then do not pay prop taxes again until Jan 4, 2012 and Dec 30, 2012.

Do the same with charitable deductions.

Yeah, I thought about that and can do that to some extent. I do tend to make two property tax payments every other calendar year (since ours are due on January 31), and that used to work great when we had mortgages and higher property taxes. Even in the "best" years it rarely gets us more than a few hundred bucks over the standard deduction, meaning that very little is actually saved.

With no mortgage, other than charity all I have are the property taxes (about $1200) and the sales tax deduction (while it lasts, about $1500). So even if I pay two property tax installments in one calendar year that's only about $4000 in itemized deductions other than charity (compared to a standard deduction of over $11K). So really I'd like to make one "charity donation on steroids" (i.e. large deposit into a charitable gift fund) for a good writeoff every 3-4 years if it makes sense.

 

[FIREd]

I must say that one of my gift fund's favorite features is the ability to donate while preserving my anonymity. I absolutely despise being hounded by every charity I have ever given a dollar to.

 

[cj]

Yes - I use the T. Rowe Price one. It's worked out well. I use it to maximize the matching gift program at w*rk; I just put the yearly max into the Charitable Giving fund, then do one match. Saves lots of paperwork for multiple donations. I like that I can put $$ in when it suits me, then if a charity I believe in has an immediate need, I can just make the grant without having to figure out where to pull the money from. It has worked out really well for us. There is a $10K minimum, but as I recall, you can build up gradually.

 

[clifp]

I am sort of waiting to open my Schwab charitable trust, until the tax rates and/or the market goes up so I can fund with appreciated stock.

 

[ziggy29]

I must say that one of my gift fund's favorite features is the ability to donate while preserving my anonymity. I absolutely despise being hounded by every charity I have ever given a dollar to.

I hadn't even thought about that benefit. That makes this seem like an even more compelling thing to do when the time is right.

 

[jebmke]

The year I ER'd (2007) we funded a charitable trust account with Vanguard using appreciated stock. Since we knew our tax rate was going to be low for at least 10 years until pension starts we loaded it with 10 years of expected contributions to take advantage of the high tax rate of my last year working.

The minimum grant is $500 which is higher than some but it hasn't really been an issue since we try to focus our grants with higher amounts after doing some homework.

I have had no issues with their administration. We invested everything in the total bond fund so even with grants our balance is higher than when we started.

 

[Nords]

I must say that one of my gift fund's favorite features is the ability to donate while preserving my anonymity. I absolutely despise being hounded by every charity I have ever given a dollar to.

I don't know Vanguard or Schwab or T. Rowe Price, but we've been very happy with Fidelity's CGF. I think the best part is the anonymity.

I also like the way a CGF decouples the tax deduction from the actual giving. Makes it a lot easier to qualify for an itemized deduction, although the only true "tax advantage" would be the amount of tax saved on the funds that exceed the standard deduction.

One caveat (at least with Fidelity) is that the funds are expected to be disbursed on at least a 5% per annum rolling three-year average. You could make lump-sum contributions every second or third year but you'd have to keep sending funds to charities or it would eventually attract the attention of the IRS.

We initially used to dump our donated assets (appreciated stock) into Fidelity's international index fund, which worked great until 2008. By early 2009 our chosen charities were 40% less happy than 2007. These days we put the donation into the money market where it doesn't earn much but will probably not lose much either. But that's just conservative stewardship; we don't try to put donated funds at risk if we know that we'll be dispensing them within a year or two.

One of the features of "The Military Guide" is that its royalties (after taxes) will be donated to military charities. It turns out that the IRS doesn't let CGFs accept royalty rights so the royalty checks have to pass through my hands before they're donated to the CGF. However the advantage of the CGF is that the contributors get to pick the military charities, so the money can be spread out to everyone's favorite causes instead of signing the royalty rights over to just one charity.

 

[ziggy29]

One caveat (at least with Fidelity) is that the funds are expected to be disbursed on at least a 5% per annum rolling three-year average. You could make lump-sum contributions every second or third year but you'd have to keep sending funds to charities or it would eventually attract the attention of the IRS.

That would absolutely not be a problem. I would imagine that in any year we'd probably be disbursing at least 25%.

 

[Coach]

I have a charitable gift account with Schwab. I've been very happy with the account and the service on it. I funded it with stock that had appreciated a bunch, and I have no particular plans to add to it. I grant about 10% of it each year.

I was impressed with the effort they went to to track down one small local charity I wanted to give to. It was just a $100 grant, but they called the charity to qualify it.

The anonymity can be nice, but they'll also send my name and address along if I want -- sometimes I like being on the mailing list.

They also have an interesting microloan program you can participate in.

Coach

 

[kyounge1956]

These sound interesting. I accidentally bumped myself down into the 15% bracket once because I forgot to mail the year's last check to my church until after Jan 1. After retirement, I don't expect to have any deductions except property taxes and charitable contributions, and it might take two years' worth of those to make itemizing worthwhile. It sounds like one of these accounts would make it possible for me to deduct charitable contributions every other year but still keep up a schedule of smaller more frequent donations. Have I got that right? Is it possible to set up automatic payments from these accounts? Or alternatively, is it possible to move money straight from an IRA into the account, and from there to the charity, without ever being required to pay the income tax?

 

[FIREd]

It sounds like one of these accounts would make it possible for me to deduct charitable contributions every other year but still keep up a schedule of smaller more frequent donations. Have I got that right? Is it possible to set up automatic payments from these accounts?

You got it right. You can take the deduction when it is most advantageous to you and then you can dole out the cash as needed. With Fidelity it is possible to set up automatic grants to your favorite charities.

 

[Nords]

It sounds like one of these accounts would make it possible for me to deduct charitable contributions every other year but still keep up a schedule of smaller more frequent donations. Have I got that right? Is it possible to set up automatic payments from these accounts? Or alternatively, is it possible to move money straight from an IRA into the account, and from there to the charity, without ever being required to pay the income tax?

Yes on the first question, and yes on the second question if the account is with Fidelity. (Maybe for other custodians too.) That is, you can schedule a grant to occur at a certain date, but I'm not sure whether you can schedule a recurring grant ("every 15 January") without jumping through some hoops:
http://www.charitablegift.org/docs/Gift-Fund-Policy-Guidelines.pdf

I haven't looked into IRA contributions yet, but my impression is that you can donate IRA shares directly to a charity without having to use a CGF. You can certainly do so from an IRA to a CGF. However I can't tell that the withdrawal is free of tax or how the tax is handled. You'd think that it would be like donating appreciated shares of a stock, however there are limits on that deduction.

Fidelity talks about offsetting the taxes of a Roth IRA conversion (Charitable Donations Help Reduce the Tax Cost of a Roth IRA Conversion | Fidelity Charitable Gift Fund) but I think you'd have to call them about contributing from an IRA without paying the tax.

 

[FIREd]

That is, you can schedule a grant to occur at a certain date, but I'm not sure whether you can schedule a recurring grant ("every 15 January") without jumping through some hoops:
http://www.charitablegift.org/docs/Gift-Fund-Policy-Guidelines.pdf

You can schedule a recurring grant with Fidelity (you set in up under the "timing" tab when you recommend a grant). I have never used that option myself, but it looks straight forward to set up.