Charitable Giving Questions

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savory

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It would be great if you could double check my thinking and recommend changes that you feel could be helpful for charitable donations and the establishment of a Donor Advised Fund. A key reason for this is to help reduce future RMDs. For this tax season, here is what I am planning:

IRA Donating

DW turns 70.5 this year. Our plan is to make our annual donations from her IRA. My understanding is the money must move from her IRA directly to the NGO that is a 501c3. I understand that there is a $100,000 ceiling. I will not be close to that in my donations but I have not determined how much I will donate this year. Part of the decision will be made based by the financial impact for moving IRA funds to Roth IRA to reduce future RMDs.

Donor Advised Fund

We plan to set up a DAF from appreciated assets this year as well for the same purpose of reducing future RMDs and still meet our giving goals. This will be done with our broker organization. I plan to move IRA funds (which I must recognize as income) to my Roth. My goal will be to move as much as I can to stay in the same tax bracket based upon charitable donation deductions

Other

The funds being moved to charities and DAF will not impact our lifestyle. The main goal is to utilize charitable donations to reduced RMDs. We have no other deductions.

Next Year

We will both be 70.5+. I expect donations will be made from mine or DW IRAs. If I feel I have financial room, I will add funds to the DAF. I do not plan on using the DAF until at least age 72. I am not opposed to leaving the DAF for my children to use and manage for their future giving. Both are very generous and would welcome the opportunity. I am not worried about making it part of the inheritance for our children.

Other - Reducing income given pension, future SS, is really not possible except eliminating investments without dividends.

Thoughts/suggestions with the main objective reducing RMDs? Other information that might be helpful?
 
Direct donations (Qualified Charitable Deductions/QCDs) cannot go to a DAF. This does not "reduce RMDs" per se but it does keep them off your income tax return. In our case this means we can use the standard deduction and effectively make a profit on it.

Our workaround for the DAF restriction is a fund at a Community Foundation that is explicitly not a DAF but the foundation consults with us when they get a grant application that fits our parameters. We do not initiate grants but we do top up the fund when it gets low.
 
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OldShooter said:
Direct donations (Qualified Charitable Deductions/QCDs) cannot go to a DAF. This does not "reduce RMDs" per se but it does keep them off your income tax return. In our case this means we can use the standard deduction and effectively make a profi on it.

Our workaround for the DAF restriction is a fund at a Community Foundation that is explicitly not a DAF but the foundation consults with us when they get a grant application that fits our parameters. We do not initiate grants but we do top up the fund when it gets low.
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I might have not been clear. QCDs will come from my DW IRA who turned 70.5. The DAF will be funded from our invested assets that are outside of our IRAs. As I understand, this will be shown our our taxes as a donation. I will than move money from my IRA to my Roth (which will increase my income) to the level of staying in the same tax bracket. Does that make sense Old Shooter?
 
savory said:
I might have not been clear. QCDs will come from my DW IRA who turned 70.5. The DAF will be funded from our invested assets that are outside of our IRAs. As I understand, this will be shown our our taxes as a donation. ... Does that make sense Old Shooter?
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Sounds fine. I just wanted to make sure that you knew there were restrictions on where the QCDs could go. And they do not show as a tax deduction. That is the sweet part. For example, last year our QCDs, as deductions, would have blown us past the standard deduction. Since they were not deductions and our other deductions were around $10K, we took the standard deduction and got around $10K of "free" tax shelter.
 
Do you have enough tax deductions to itemize? Otherwise a DAF doesn't have that much value. A QCD is better.

If you are itemizing, DAF contributions may be better, unless you have to watch MAGI for IRMAA or some other reason. You get the double benefit of the tax deduction plus getting rid of some appreciated assets. The QCD's advantage is that the money does not show up in your MAGI.
 
On a related note, starting in 2022 I'll have to take RMDs from my inherited IRA. Can I avoid some of the taxes by using some of that RMD amount to donate to charity? If so, it has to go straight from Vanguard to the charity, right? Let's say my RMD is $20,000. Can I donate $2,500 to charity and then only have to pay taxes on the $17,500 that I actually take out personally?
 
disneysteve said:
On a related note, starting in 2022 I'll have to take RMDs from my inherited IRA. Can I avoid some of the taxes by using some of that RMD amount to donate to charity? If so, it has to go straight from Vanguard to the charity, right? Let's say my RMD is $20,000. Can I donate $2,500 to charity and then only have to pay taxes on the $17,500 that I actually take out personally?
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Schwab has given us check blanks for QCDs. We just write the charity a check and Schwab pays the check from the IRA. Very easy. We even use the checks for popcorn stuff like public radio membership. Given the competitive nature of Fido and VG I'd be surprised if they didn't have something similar.
 
OldShooter said:
Schwab has given us check blanks for QCDs. We just write the charity a check and Schwab pays the check from the IRA. Very easy. We even use the checks for popcorn stuff like public radio membership. Given the competitive nature of Fido and VG I'd be surprised if they didn't have something similar.
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Wow. That's nice. I will have to check if VG has a similar set up. That would make it super easy.
 
RunningBum said:
Do you have enough tax deductions to itemize? Otherwise a DAF doesn't have that much value. A QCD is better.

If you are itemizing, DAF contributions may be better, unless you have to watch MAGI for IRMAA or some other reason. You get the double benefit of the tax deduction plus getting rid of some appreciated assets. The QCD's advantage is that the money does not show up in your MAGI.
Click to expand...

No, I do not have any deductions. Charity would be my only one. I think I understand Oldshooters approach and your QCD suggestion. I think you guys agree.

But if my DAF contribution is greater than $25,100 would I not qualify for a tax deduction for the amount I provided which was over the standard deduction?

It would seem better to use QCDs but I wanted to be sure I understood DAF opportunity.
 
savory said:
No, I do not have any deductions. Charity would be my only one. I think I understand Oldshooters approach and your QCD suggestion. I think you guys agree.

But if my DAF contribution is greater than $25,100 would I not qualify for a tax deduction for the amount I provided which was over the standard deduction?

It would seem better to use QCDs but I wanted to be sure I understood DAF opportunity.
Click to expand...
Yes, we are in agreement.

You would the a tax deduction if your DAF contribution is large enough, but only for the amount over the standard deduction amount. With the QCD you get a benefit with every dollar.
 
savory said:
No, I do not have any deductions. Charity would be my only one. I think I understand Oldshooters approach and your QCD suggestion. I think you guys agree.

But if my DAF contribution is greater than $25,100 would I not qualify for a tax deduction for the amount I provided which was over the standard deduction?

It would seem better to use QCDs but I wanted to be sure I understood DAF opportunity.
Click to expand...
Yes. Losing the first $25K or so of a deduction is pretty painful though. I would suggest that you limit your family charitable donations to QCDs up to DW's RMD amount until you also have an RMD requirement and can do your own QCDs.
 
If it’s high enough you get both the charitable deduction on Schedule A and the capital gain not showing up as taxable income.

Also, there are probably other items you could itemize that would push the total above the threshold such as property taxes, etc. - up to $10K.

After 70.5 might be easier to use QCD.
 
Sarah S said:
Didn’t the age change? And I thought you couldn’t start direct donations from your ira before you have to take rmds? https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-required-minimum-distributions
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Oddly, while the RMD age changed, the QCD age apparently did not. I thought they were coupled together, but since you could do up to $100K in QCDs/yr even if your RMDs weren't that high, I guess they weren't that related.
https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-iras-distributions-withdrawals
 
I think I have a handle on it. We did donate a used car this year so we will need to evaluate that donation as well as capital gains as it relates to a DAF. We will definitely be moving ahead with QCDs

Thanks for your input. As usual very helpful.
 
Yeah, I want to know why too? Are you assuming someone would “save” their QCDs for RMD years as opposed to giving say the same amount each year starting at 70.5?
 
OldShooter said:
Schwab has given us check blanks for QCDs. We just write the charity a check and Schwab pays the check from the IRA. Very easy. We even use the checks for popcorn stuff like public radio membership. Given the competitive nature of Fido and VG I'd be surprised if they didn't have something similar.
Click to expand...


That is a nice Schwab feature. Originally, we would send Schwab a list of charities a couple of times a year. We included the recipients's name, address and amount of donation. $100 here, $50 there, $25 ....... etc. They'd send checks and lower our required RMD amount by the total. Now DW can just write checks herself and our RMD is lowered by the amount of her generosity.

I'm betting the other major brokerage houses do the same.
 
RE2Boys said:
One would decrease the invested funds prior to being compelled to by RMDs. Admittedly by maybe half a year!!
Click to expand...

The reason I was considering to donate QCDs at 70.5 is that I did not plan to donate $25K this year. So, I was not going to receive a charitable deduction. Reducing my future RMDs by using the money tax free now seemed to be a good idea, since I was going to give a donation anyway. I guess I will be giving up a year of IRA earnings (or losses) but at this point, I cannot see how this will result in a loss of net worth.

If allowed, I actually might have done it when I was younger.
 
RunningBum said:
I have an idea why, but please explain?
Click to expand...

Not jebmke, but the main difference I see is that a QCD at RMD age can offset (some or all of) the RMD, whereas a QCD at age 70.5 can't / doesn't. I think it is a YMMV situation as to whether that is good / bad / neutral.

RE2Boys said:
One would decrease the invested funds prior to being compelled to by RMDs. Admittedly by maybe half a year!!
Click to expand...

Depending on when in the year you were born, more like two years. My QCD start date is in November 2039, and my first RMD is (currently) due in 2041. If SECURE 2.0 Act passes, it could be up to five tax years of difference.

It's nice that Congress keeps us on our toes.
 
The desirability of using QCDs pre-RMD really depends on itemized deductions. If itemized deductions exceed the standard amount exclusive of charitables then doing QCDs probably doesn't matter. But if doing QCDs would reduce itemized deductions to below the standard amount, then the difference between the standard amount and the actual deductions is "free" tax shelter. In our case its about $10K of shelter. Pretty significant.
 
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