Making charitable donations is something most Americans do with whatever income they earn. Even though gift-making is done primarily with the intention of aiding the ones that are in need, you can also benefit from making charitable donations because you can deduct some of them from your Income Tax. This is the scenario of people who are presently working and are getting a proper income every month.
When it comes to retirees, the scenario is different. When a person retires, she/he is discouraged from making gifts and there are many reasons why a retiree would feel so. It could be because of the lack of ongoing charities. When someone is working, they usually give out charities through payroll deduction gifts to charitable communities. One another reason why people aren’t very confident in making gifts when they have retired is that they don’t have ongoing wages. Most of the retirees might be living in a retirement fund that they have saved, SSL savings, and so on. So most of them do not feel like risking the money that they have for their full retirement for making gifts. These are a few main reasons why retirees always feel discouraged from making gifts or donating to charities. But this shouldn’t stop you from making donations even when you are in your retirement life. So here are five charitable giving strategies that you can utilize that will also benefit you in a way.
5 Tax-Smart Charitable Giving Strategies for Retirees
1. Bunch Your Donations
Bunching your donations is a smart strategy that you can use while making gifts. This means that you combine the charitable donations of multiple years into a single year and then you itemize your tax deductions in that year. So this means that you can take standard tax deductions. This is how bunching your donation works. Let’s say for example make the donation that you want to do next year this year itself. You will be making a big donation in one year and you will get a tax deduction for it this year. Then the next year, you can hold onto your donation but you will still get a standard tax deduction that year.
2. Use Donor-Advised Funds
Some might feel like bunching your donations isn’t good. This is mainly because they might not be making any donations a year or so which makes a person feel like they are doing enough for people who are in need of such gifts. For such people, the best charity donation strategy is using donor-advised funds. Donor Advised Funds or commonly known as DAF is an account that gives the option to make charity whenever they want and get an immediate tax deduction. One of the best things about a DAF account is that you can set it up with your adult children. This gives you the option for joint charity donations.
3. Make Qualified Charitable Donations
If you are someone who is over 70 and wants to be involved in tax advantage charity donations, then qualified charitable donations or QCD might be the one that you are looking for. Qualified Charitable Donations is a tax-free donation that takes up a charity from your IRA. Here the benefit is not tax deduction but rather avoiding other retiree taxes. QCDs are mainly beneficial for people who are over the age of 70 and should keep the required minimum distributions. By choosing QCD, instead of forcing charity out of your IRA, your IRA custodian will be the one that should send funds to your charity.
4. Set Up a Charitable Gift Annuity
There are some retirees who do not have a great source of income or do not have big fat savings in their account but might have a property that they can give to your charity. So if you are someone who has such a property, then one of the best strategies that you can do is to set up your property as a charitable gift annuity. This is an agreement between a donor and a charity organization. Here, the donor will get an income for their life for the assets that they have set up for the charity organization and after their death, the property will be gone to the organization.
5. Make Gifts to Charitably Inclined Adult Children
This is a different look at making gifts when you are a retiree. Most retirees are in the low-wage bracket but their adult children, on the other hand, might be in the high-wage bracket. So here what you can do is to give gifts to your children and let them do charity. In this way, you are not directly making donations and you don’t get a tax deduction. But you are also making a donation and your adult children will benefit from it by getting a tax deduction for the charity that they have made and also for the charity that they have made with the gifts that they have given you.
These are some smart charitable giving strategies for retirees. Not all of these would work for every retiree equally, so we recommend that you consult with your tax approach before choosing any of these approaches, and then choose the one that will at the same time serve your purpose and will also benefit you.
Anna Smith is a blockchain expert and crypto enthusiast with over 5 years of experience in the industry. She is the author of the best-selling book "Cryptocurrency for Beginners" and a regular contributor to leading industry publications. In her free time, Anna enjoys staying up-to-date with the latest developments in the crypto world and participating in online forums and communities. She is also an avid supporter of cryptocurrency adoption and believes in the power of decentralization to shape the future of finance.